Nexus Between Boardroom Gender Diversity,corporate Social Responsibility And Earning Management: Empirical Evidence From China

This thesis explores the nexus between boardroom gender diversity,corporate social responsibility and earning management: Empirical evidence from ChinaMore precisely this thesis examines the issues:(1)Does CSR mediates the relation between boardroom gender diversity and firm performance of Chinese listed companies? And(2)Do gender diversity in board and top management team constrains the earnings management of Chinese listed companies?The author used the data from all non-financial listed companies on the Shanghai &Shenzhen stock exchanges for the period of 2008 to 2017.The data collected from the China stock market and accounting research(CSMAR)database.To draw the inferences,the author used pooled ordinary least squares(OLS)regression as a baseline methodology.To control the possible problem of endogeneity author use one year lagged and two-stage least squares(TSLS)regression.The first purpose of my study is to check: Does corporate social responsibility(CSR)mediates the relation between boardroom gender diversity and firm performance of Chinese listed companies? Although the relationship between boardroom gender diversity and a firm's financial performance had investigated before,the current study provides a valuable contribution by exploring the complex phenomenon of the mediating impact of corporate social responsibility performance between boardroom gender diversity and firm performance.My finding shows that boardroom gender diversity proxy(Blau index)had a significant impact on firm performance.My finding supports the gender role theory as female directors are considered to be more flexible which leads to the better capability to manage uncertain situations.Female directors and managers also understand the customers and markets in a better way as compared to males which lead to improvement in firm performance and human capital as individual characteristics correlated to its output,and creative individuals are an asset leading to improves firm performance.This result also supports stakeholder theory as good relationships with stakeholders positively affect long-term corporate performance.Second,besides establishing the direct link between boardroom gender diversity and firm performance,I have contributed to the boardroom gender diversity literature by theoretically proposing and empirically showing that corporate social responsibility fully mediates the relation between boardroom gender diversity and firm performance.Moreover,slack resources theory has also supported this finding as firms with slack financial resources invest in corporate social responsibility projects to reach a higher standard of corporate performance.Thus companies undertake multiple forms of corporate social responsibility including gender diversity at board level efforts and allocate slack resources to these efforts to create a positive impact on the firm's financial performance.These findings are collectively indicating that corporate social responsibility fully mediates the relation between boardroom gender diversity and firm performance.So corporate social responsibility can be said to serve as a “filter” facilitating relation between the boardroom gender diversity and firm performance.To ensure the robustness of my findings,I used an alternative measure of boardroom gender diversity proxy(proportion of female director).The results of the alternative measure of boardroom gender diversity confirm my main findings and indicating that corporate social responsibility fully mediates the relation between boardroom gender diversity and firm performance.A potential problem that may occur in the main model is endogeneity;i.e.,the possibility that the dependent variable(firm performance)may influence any one of the independent variables.I used alternative models.First,I used the one year lagged values of boardroom gender diversity proxy because women directors need some time to affect the decision making of the board.The results of the alternative measure of boardroom gender diversity confirm my main findings.Secondly,I used two-stage least square(TSLS)method by considering the lag value of boardroom gender proxy as an instrumental variable which likely meets the requirement that it is not correlated with the firm performance but related with the decision of female directorship in the boardroom.The results are also consistent with my main findings.The second purpose of my study is to check: Do gender diversity in the board,and top management team constrains the earnings management of Chinese listed companies?.The primary motivation of this research question is to examine whether gender diversity on board and in the top management team,are valuable in constraining earnings management.Since earnings management misleads investors and camouflages the real financial situation of the firms,Chinese regulators dedicated to eliminating opportunistic earnings practices and maintaining market integrity.To create a right corporate environment where Chinese firms can operate more efficiently and less corruptly,Chinese regulators also publish the Chinese Code of Conduct for companies to follow.My findings show that female directors have a significant negative impact on both accrual and real earnings management models.In other words,as the fraction of females on boards of director's increases,discretionary accruals and real earning management activities decreased.Secondly,I did not find any significant relationships between female Chief executive officer(CEO)and Chairman with earning management in both models(accruals-based and real earnings models).However,these insignificant results may be due to a low figure of Chief executive officer(CEO)and Chairmen's in the sample,and this result also suggests that glass ceiling outcome thwart female to getting such position in Chinese listed companies.It means Chief executive officer(CEO)and Chairmen are male controlling positions in China.The coefficients of the female Chief financial officers(CFOs)in all models are highly significant,and overall female Chief financial officers(CFOs)negatively affect earnings management practices.My findings present therefore significant support to claim that female Chief financial officers(CFOs)are more conservative in their financial reporting policies as compared to male Chief financial officers(CFOs).Indeed,female financial officers(CFOs)show a more prominent concern for interpersonal connections utilizing the rules of fairness and naturally more expected to notice manipulation of earnings as compared to male financial officers(CFOs).These findings are consistent with agency theory and prove that women executives increase the board supervision efficiency which increases the detection of earning management.Female directors consider the successful controller as compare to the male director because they present better supervision for management reports and show an incredible concentration on detail.Furthermore,females have a better level of moral values as compared to males.They can also make better in decision making,manners and the powerfulness of the board.It is also notable that most of the gender diverse boards not only increase their controlling ability but also show superiority in their decision making.Eventually,the existence of female directors on the board is a key corporate governance tool to stop earning management practices and to decrease agency costs.I also used robustness tests.In the first,I tested the effect of board size and board member meeting frequency on accrual and real earning management.In the second,I analyzed the impact of female directors on the board and top management positions on the subcategories of real earning management.Finally,in the third,I controlled the endogeneity problem by using twostage least square(TSLS)regression.Overall,these tests confirmed the robustness of my primary findings.This thesis contributes to the accounting literature in the following four main areas.First,I build a new measure of corporate social responsibility disclosure index using three dimensions which combine disclosure quantity and two aspects of disclosure quality(GRI guidelines and assurance from the stakeholder perspective.Research in both developed and emerging economies have mainly focused on disclosure quantity,and a much smaller number of empirical studies have investigated disclosure quality.Second,this research study is the extension of the previous work done by Lau et al.(2016),whose main focus was on Rankin's(RKS)ratings to measure corporations' social performance in China,for one-year only and most studies have used the survey method that can lead to non response and problem of sample representation.To overcome this problem,my sample includes all listed firms with corporate social responsibility reports.Whereas,this research study is first in its nature that developed “average corporate social responsibility(CSR)disclosure score” for listed firms with corporate social reports of China by using a secondary data available at reliable Chinese database China stock market and accounting research(CSMAR)in compliance with guidelines issued by stock markets of China.Third,past studies have not considered the possibility that corporate social responsibility practices may have a mediating role in the boardroom gender diversity and firm performance relationship.The findings of this study will not only relevant for Chinese companies but also for foreign investors who invest in Chinese companies.Fourth,most of the previous studies focus on the association between board gender diversity and discretionary accruals and how board gender diversity affect real earning management rarely discussed because of the one technique of earning management fail to cover the overall effect of board gender diversity.In specific,when managers use the two earning management techniques as an alternative for each other.My study fills this gap by investigating the effect of gender diversity in board and top management team on both accrual and real earning management because after the Sarbanes–Oxley Act(SOX)of 2002,real earning management rapt the focus of managers and researchers instead of accrual earning management,because real earning management is costly and harder to deduct from regulators.This study has several implications for policymakers.Firstly,my study may a great help to investors and regulators in the Chinese business context because they can open new prospects on understanding the role of gender diversity in the board.Secondly,they can contribute to a better understanding of corporate social responsibility(CSR)disclosure.This implication also supports the theoretical idea of stakeholder needs where there is an increasing demand for gender diversity on the board as it considered that female director would put forward the interests of employees and other stakeholders more than male directors.Third,my research can assist the Chinese government and Chinese companies in encouraging the proportion of female directors on the board and in top management teams because females are more ethically to constrain the practices of earning management in a better way and lead to enhance the level of fair disclosure and earnings quality.Fourth,the study also fills the gap of a scarcity of evidence regarding the methods of real earning management in one of the emerging economies(China)and offers a comprehensive overview and an empirical investigation of the effect of gender diversity in the board and top management team on both accrual and real earnings management direction.Fifth,the results of my research will be of particular interest not only to academics but also important for collaborators and foreign investors.This study results are also important for external capital providers and other partners in evaluating the popularity of earning management and general reliability of financial reporting of Chinese listed companies.Additional,my study gives important implications for policymakers,researchers,corporate personnel and investors who are interested in other Asian markets that have a similar cultural environment with China.This study has some limitations.Although I have taken corporate social responsibility as a mediator variable,maybe several other variables exist that will mediate or moderate this relationship(e.g.,state ownership and institutional investors).Future studies are required to investigate other possible corporate social responsibility variables that could impact the firm on performance in various contexts,including in developing country contexts.Second,I used a small sample size due to unavailability of data.Therefore,future studies should use a bigger sample size.Third,the research is limited to corporation performance indicators,such as Tobin's Q,to measure corporation financial performance.The future studies can apply more comprehensive corporation performance indicators(both accounting and market-based performance indicators,for instance,stock return,and price to earnings ratio)to check the mediation effect of corporate social responsibility on the relation between boardroom gender diversity and firm performance.Fourth,future studies should focus on the nationality of the board members to see whether culture affects boardroom gender diversity or not.