High-quality voluntary reporting when women are on board

New research suggests that investors and stakeholders can have more confidence in a company’s financial reporting if the board includes women. And while one woman on the board is sufficient to improve the quality of financial disclosures, two or three women is even better.

Research co-author, Accounting Professor Sue Wright from the University of Technology Sydney, links the findings to previous research on female directors.

“We know that women on boards are likely to be more ethical, more risk-averse, and more conservative. Interestingly, they have better attendance records, and are also more willing to gently disrupt the board culture by asking questions.”

“When a board includes female directors, our research shows it is a better monitor of company reporting. In particular, board monitoring over managerial reporting choices is shown to be more robust. Managers are less likely to be opportunistic when the board is gender-diverse,” she said.

Our insights about non-GAAP reporting corroborate the important role of monitoring associated with the board of directors. It also highlights to regulators that gender-diversity could be one way to improve disclosure quality.

Professor Sue Wright

The study focussed on the quality of non-standard financial measures known as non-GAAP disclosures.

“Companies’ annual reports often include additional voluntary information, which managers’ claim can better explain a company’s financial performance. It is well known that the quality of these disclosures varies,” said Professor Wright.

Using a sample of 200 firms on the Australian Securities Exchange from 2013 to 2018, the research team measured the quality of non-GAAP earnings by examining consistency across time, and whether financial exclusions were comparable to similar firms.

The results showed that when firms have gender-diverse boards, their reporting of non-standard financial measures was more consistent and more comparable.

The research is likely to be of interest to both investors and regulators.

“Our insights about non-GAAP reporting corroborate the important role of monitoring associated with the board of directors. It also highlights to regulators that gender-diversity could be one way to improve disclosure quality.”

Publication details:

Do women mind the non-GAAP? Board gender diversity and non-GAAP disclosure quality
Dinithi Ranasinghe, Luisa Unda, Sue Wright
European Accounting Review