Auditor gender and corporate earnings management behavior in private Finnish firms

Purpose - The purpose of this paper is to investigate whether or not auditor gender has an impact on the magnitude of corporate earnings management in small‐ and medium‐sized private Finnish firms. Design/methodology/approach - The paper examines the association between auditor gender and earnings management of private firms by means of multiple linear regression analysis. In this analysis the paper uses discretionary accruals (DACC) estimated by using the cross‐sectional version of the Jones model as a measure for corporate earnings management. Findings - When the absolute (unsigned) earnings management on gender and a set of control variables is regressed, it is found that female auditors allow for more discretion in income reporting. When the analysis is conducted separately for sub‐samples of income increasing and income decreasing DACC, the results suggest that female auditors are more conservative. Research limitations/implications - This study has been conducted by using data from one country. Since it is commonly known that the role of females in the society varies from one country to the next more research is needed in different social environments. Practical implications - When selecting auditors, management should pay attention also to the gender of the auditor. It may also be useful for stakeholders to pay attention to the gender of the auditors that they engage or the gender distribution of the audit team. Social implications - The results imply that gender diversity in the auditing profession may improve the quality of financial statement overall. Originality/value - This study is the first one that investigates the effect that auditor gender may have on actual earnings management behavior. It also adds to the understanding on earnings management in private firms.