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Board Gender Diversity and Internal Control Weaknesses

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  • Chen, Yu
  • Eshleman, John Daniel
  • Soileau, Jared S.

Abstract

We investigate the role of gender diversity on corporate boards in mitigating internal control weaknesses (ICWs). We predict and find that firms with greater female board representation are less likely to have ICWs. The results are not driven by females sitting on the audit committee. Instead, it appears that females on corporate boards reduce ICWs, regardless of whether they sit on the audit committee or not. Our results are inconsistent with the critical mass theory, showing that even one female board member could reduce the likelihood of ICWs. Taken together, the evidence is consistent with female board members' typical characteristic tendency shown in prior literature (e.g., being more likely to discuss difficult issues, more fiscally conservative, better monitors, and less tolerant of opportunistic behaviors). Our results have implications for board member selection from a policy perspective as well as board member monitoring from an investor and regulator perspective.

Suggested Citation

  • Chen, Yu & Eshleman, John Daniel & Soileau, Jared S., 2016. "Board Gender Diversity and Internal Control Weaknesses," Advances in accounting, Elsevier, vol. 33(C), pages 11-19.
  • Handle: RePEc:eee:advacc:v:33:y:2016:i:c:p:11-19
    DOI: 10.1016/j.adiac.2016.04.005
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    2. Adusei, Michael, 2019. "Board gender diversity and the technical efficiency of microfinance institutions: Does size matter?," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 393-411.
    3. Elsayed, Mohamed & Elshandidy, Tamer, 2021. "Internal control effectiveness, textual risk disclosure, and their usefulness: U.S. evidence," Advances in accounting, Elsevier, vol. 53(C).
    4. Oliver Henk, 2020. "Internal control through the lens of institutional work: a systematic literature review," Journal of Management Control: Zeitschrift für Planung und Unternehmenssteuerung, Springer, vol. 31(3), pages 239-273, September.
    5. Bolton, Brian & Lian, Qin & Rupley, Kathleen & Zhao, Jing, 2016. "Industry contagion effects of internal control material weakness disclosures," Advances in accounting, Elsevier, vol. 34(C), pages 27-40.
    6. Kun Zhang & Yuanyuan Wang & Xuegang Cui & Hong Yue, 0. "Can the academic experience of senior leadership improve corporate internal control quality?," Asian Business & Management, Palgrave Macmillan, vol. 0, pages 1-30.
    7. Chalmers, Keryn & Hay, David & Khlif, Hichem, 2019. "Internal control in accounting research: A review," Journal of Accounting Literature, Elsevier, vol. 42(C), pages 80-103.
    8. Hrazdil, Karel & Simunic, Dan A. & Spector, Stephen & Suwanyangyuan, Nattavut, 2023. "Top executive gender diversity and financial reporting quality," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(2).
    9. Liu, Yin & Neely, Pamela & Karim, Khondkar, 2022. "The impact of CFO gender on corporate overinvestment," Advances in accounting, Elsevier, vol. 57(C).
    10. Concannon, Margaret & Nordberg, Donald, 2018. "Boards strategizing in liminal spaces: Process and practice, formal and informal," European Management Journal, Elsevier, vol. 36(1), pages 71-82.
    11. Nguyen, Tuan & Nguyen, An & Nguyen, Mau & Truong, Thuyen, 2021. "Is national governance quality a key moderator of the boardroom gender diversity–firm performance relationship? International evidence from a multi-hierarchical analysis," International Review of Economics & Finance, Elsevier, vol. 73(C), pages 370-390.
    12. Ndaman Abdullahi & Bello Lawal, 2023. "Directors’ Diversity and the Economic Value of Equity," Applied Economics and Finance, Redfame publishing, vol. 10(2), pages 23-36, May.
    13. Kun Zhang & Yuanyuan Wang & Xuegang Cui & Hong Yue, 2022. "Can the academic experience of senior leadership improve corporate internal control quality?," Asian Business & Management, Palgrave Macmillan, vol. 21(2), pages 231-260, April.
    14. Legoria, Joseph & Rosa, Gina & Soileau, Jared S., 2017. "Audit quality across non-audit service fee benchmarks: Evidence from material weakness opinions," Research in Accounting Regulation, Elsevier, vol. 29(2), pages 97-108.

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    More about this item

    Keywords

    Gender diversity; Internal controls; Board of directors; Corporate governance;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination

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