Can Women take on Corporate Short-Termism? An Empirical Study of Executive Gender among Other Determinants of Corporate Short-Termism measured through Earnings Manipulation

Abstract: Executives face intense public scrutiny for excessive risk taking connected to large near-term pay-offs as well as receiving extremely high compensation, even in times of poor performance. This stands in stark contrast to a lack of conclusive findings on corporate short-termism in the academic literature. The review of past research further reveals limited knowledge of the role of executive characteristics as determinants of corporate short-termism. Moreover, gender has previously been related to differences regarding risk aversion, information processing and ethical values and thus has particular explanatory potential for executive behaviour. Accordingly, the thesis aims to examine the effect of executive gender among other determinants of corporate short-termism such as capital market pressure and compensation structure. In our study, corporate short-termism is measured through earnings manipulation. The causes of the phenomenon in general and the effect of executive gender in particular, are investigated using a cross-sectional panel of S&P 1500 firms over the time period from 2000 to 2010. Our study shows that both capital market pressure, measured as the number of analyst forecasts, as well as the amount and structure of executive compensation, are important determinants of corporate short-termism. In contrast to previous findings in the accounting literature, we find no clear evidence that the gender of the executive has a significant influence on earnings manipulation. This questions the idea that gender differences manifest in divergent behaviour of executives and supports the structural approach to gender differences, which states that occupational role requirements override gender norms. We conclude that legislators seeking to curb corporate short-termism should consider regulations concerning analyst coverage and executive compensation above gender diversity considerations.