Female leadership and financial reporting quality in Egypt

Abstract

Purpose: Many countries are enacting regulations or/and recommendations to promote gender equality in the workplace, especially in the top leadership and management positions. However, despite current research on gender diversity and firm outcomes, the authors know comparatively little about how different female leadership roles drive such outcomes. This study explores this notion in an emerging market by examining the effect of female leadership on financial reporting quality in Egypt.

Design/methodology/approach: This study uses multiple regression analyses for a sample of 1,686 firm-year observations listed on the Egyptian Stock Exchange over the period 2011–2020.

Findings: This study’s results show that female directors, female executives and females on audit committees are positively associated with financial reporting quality. Further, the results suggest that executive female directors are less involved in income decreasing earnings management practices. The findings are robust to possible omitted variables bias, alternative measurements and endogeneity issues. Taken together, the results are in line with the view that gender diversity is an effective monitoring instrument, which attenuates agency conflict and thus upholds financial reporting quality.

Research limitations/implications: Future research may expand the analysis performed in this study by using other proxies of financial reporting quality (e.g. earnings persistence, earnings predictability, conservatism and restatements). Also, the authors did not investigate the characteristics related to female directors (e.g. education, experience and age) due to data availability. Future research may examine the effect of these characteristics on female directors regarding financial reporting quality.

Practical implications: The evidence about the importance of female leadership in shaping financial reporting quality may inform future policy and regulatory initiatives.

Originality/value: This study contributes to the growing literature related to gender diversity. First, this study extensively investigates the leadership aspects related to female directors in both mentoring and executive positions. Second, the evidence reached is based on three different proxies of financial reporting quality. Thus, unlike previous studies, conclusions were reached based on a solid basis to support the reliability of the results. These findings should be of great interest to policymakers, academics and stakeholders.