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1. Introduction
We investigate how financial reporting quality (FRQ) is affected by chief financial officer (CFO) gender, board of directors (BOD) gender diversity and the interaction of both factors. We draw from upper echelons theory, which posits that firm outcomes are influenced by the characteristics of individuals in top management (Hambrick and Mason, 1984). This topic is particularly important because gender quota laws and pressure from institutional investors (Gormley et al., 2021) are driving increased gender diversity in the upper echelons of US firms [1]. We build on the work of prior authors who find that FRQ is improved when the CFO is a woman (Barua et al., 2010; Gupta et al., 2020; Peni and Vähämaa, 2010) and when a higher proportion of women serve on the BOD (Abbott et al., 2012; Srinidhi et al., 2011; Wahid, 2019). We begin by confirming these findings using the occurrence or absence of restatements as a proxy for FRQ. We then consider how FRQ is affected by the interaction of CFO gender and BOD gender diversity. Specifically, we consider how the effect of CFO gender on FRQ differs between firms with and without all-male BODs. And how the effect of one or more women on the BOD is influenced by CFO gender. To our knowledge, the interaction of the effects of CFO gender and BOD gender diversity has not been considered previously, leaving a gap in the literature. We find evidence that restatements are less likely when the CFO is a woman and when a higher proportion of women serve on the BOD. We consider the interaction of these effects, finding evidence that women on the BOD are more effective at reducing restatement likelihood when the CFO is also a woman. The interaction effects also provide evidence that although female CFOs reduce restatement likelihood generally, they have no statistically significant effect on restatement likelihood when the BOD is all-male. These findings reveal that the effects of CFO gender are moderated by BOD gender diversity and vice versa. Thus, contributing to a more nuanced understanding of the relations between CFO gender, BOD gender diversity and FRQ.
Financial reports shape the investment decisions of market participants who depend on their accuracy. For this reason, high-quality...