Women on boards and earnings management: What really matters?

Abstract

The diversity of gender and income conservatism has been intriguing topics over the last decade. The effect of women who are more likely to be financially conservative than men will bring impact on the practices of conservative accounting, particularly when determining revenues for corporate governance. Therefore, we investigate the effects of women leaders in corporate business and their impacts on earnings management. The population of the study includes companies indexed in the Indonesia Stock Exchange, except for banking corporates. By using purposive sampling, 341 companies were selected for observation within six years. Total population sampling is 2046 data (firmyears). Hypothesis testing employed the multiple regression model on panel data with the Ordinary Least Square (OLS) approach. The estimation result of the Jones Model indicates women in top supervisory have no significant effect on earnings management while women in top management have a negative significant effect on earnings management. In addition, the hypothesis testing with the Kothari model demonstrates a negative significant effect of both women in top supervisory and women in top management toward earnings management. Therefore, we justify that women in top supervisory and women in top management bring prominent contributions to corporate business mainly in the financial sector, particularly in the improvement of financial reports by reducing the likelihood of earnings management practices.

Female in board and earnings management: Evidence in Indonesia non-financial firms

“…The results of this study are supported by research conducted by Ye et al (2010), who also found that the gender of the management board did not affect corporate earnings management. The results of this study contradict the research conducted by Kim et al (2017), Hala (2019), Harakeh et al (2019), who found that females in the management board negatively affected earnings management.…”

“…The presence of women in firm leaders also indicates the existence of gender diversity in firm leaders that can prevent specific individuals or groups from dominating the decision-making process (Lakhal et al, 2015). This is also supported by research conducted by Hala (2019) and Harakeh et al (2019), who found that women in upper management can reduce earnings management. Kim et al (2017) also found that female in management board had a negative effect on earnings management H 2 : More female presence on the board of directors has…”

“…Saona et al (2019) suggested that female characters are more risk-averse and conservative compared to men. Previous studies relating to the influence of gender of the board of directors on earnings management conducted by Hala (2019) found that women in upper management had a negative effect on earnings management. This is also supported by research conducted by Harakeh et al (2019) and Kim et al (2017).…”

“…The Board of Commissioners is in charge of supervising management policies, the course of management in general, both regarding the company and the company's business carried out by the Board of Directors (Otoritas Jasa Keuangan, 2014). Women in top supervisory have the ability to improving revenue information by reducing earnings management that creates blurred information (Hala, 2019). The risk-averse and conservatism characteristics of women allowed them to carry out surveillance tasks more objectively (Salleh et al, 2012).…”

“…The characteristics of women as a commissioner can reduce the firm's earning management. This is supported by Hala (2019) that said female commissioners are able to provide better supervision and able to align management interests and stakeholders. The opposite was obtained from research conducted by Female in board and earnings management: Evidence in Indonesia non-financial firms Sofian, S, Patricia Febrina Dwijayanti, Hendra Wijaya | 451 | Setiawan (2018), and Soebyakto et al (2018) found that female commissioners had no effect on earnings management.…”