Earnings Management and Female Representation on the Board of Directors

Abstract: In order for financial reporting to serve its purpose, the information conveyed needs to be correct. This paper addresses gender diversity on boards of directors, a factor argued to have a beneficial impact on corporate governance and thus in extension the correctness of presented corporate information. We look at this relationship by using the Modified Jones Model to proxy Earnings Management and find a negative association between this proxy variable and female representation on boards of directors in Norway. The exogenous shock, in the shape of a gender quota, that was introduced in Norway seriously mitigates problems with endogeneity. The implication of this is that we can establish the causal direction: that gender diversity affects earnings management and not the other way around.