Are female CFOs more ethical to the occurrences of financial reporting fraud? Theoretical and empirical evidence from cross-listed firms in the US
| Date | 20 September 2022 |
| Pages | 1342-1366 |
| DOI | https://doi.org/10.1108/JFC-07-2022-0170 |
| Published date | 20 September 2022 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Ach Maulidi,Nanang Shonhadji,Fachruzzaman ,Rida Perwita Sari,Dian Anita Nuswantara,Rindang Widuri |
Are female CFOs more ethical to
the occurrences of financial
reporting fraud? Theoretical and
empirical evidence from
cross-listed firms in the US
Ach Maulidi,Nanang Shonhadji,Fachruzzaman,Rida Perwita Sari,
Dian Anita Nuswantara and Rindang Widuri
(Author affiliations can be found at the end of the article)
Abstract
Purpose –The purpose of this study is to examine whether female chief financial officers (CFOs) are
associated with the occurrencesof financial reportingfraud. This study offers new theoretical and empirical
evidenceon whether firms with more female CFOs are more (less) likelyto engage in financial reporting fraud.
Design/methodology/approach –This study is basedon asample of US-listed firms from 2011 to 2021.
The authors speculatethat female CFOs play a weaker role in the occurrences of financialreporting fraud. So,
firms witha proportional numberof female CFOs should be less likely to commitfinancial reporting fraud.
Findings –The data provide support for the predictions of this study. This study suggests a negative and
significant association between the dummy variables for female CFOs and the occurrences of financial reporting
fraud. The authors find that this association is contingent on governance mechanisms [e.g. ownership structure,
politically connectedCEOs and firms’conditions that do (or do not) invest in a gender-div erse board].
Originality/value –This study offers different perspectives on the impact of female CFOs on the
occurrencesof financialreporting fraud. The results of thisstudy are distinguishable from prior studies. This
study moves the analytical focus from the macro level(gender diversity or female corporate leaders) to the
micro level (female CFOs)to understand firms’propensity to commit financial reporting fraud. Additionally,
this studyis basedon factual financial reportingfraud cases, considering the US firms’fraudcharacteristics.
Keywords Governance mechanisms, Female CFOs, Financial reporting fraud,
US firms’fraud characteristics
Paper type Research paper
The authors would like to thank the editor-in-chief and the anonymous reviewers for their helpful and
constructive comments that greatly contributed to improving the final version of the manuscript.
Retraction notice: The publishers of Journal of Financial Crime wish to retract the article “Are
female CFOs more ethical to the occurrences of financial reporting fraud? Theoretical and empirical
evidence from cross-listed firms in the US”by A. Maulidi, N. Shonhadji, Fachruzzaman, R.P. Sari,
D.A. Nuswantara, and R. Widuri which appeared in Volume 30, Issue 5, 2 023.
It has come to our attention that statistical errors are present within the article and therefore the findings
cannot be relied upon.
As part of an investigation into the article’sfindings,the authors were requ ested to provide a copy of the
dataset so that the editorial team could verify the findings. The authors were unable to prov ide the dataset
and stated they had committed statistical errors. The author would like to note that any wrongdoing was
unintentional.
This article has been retractedat the authors’request.
The author guidelines of the Journal of Financial Crime make it clear that submitted articles must
include data free from errors that may affect the understanding of the article.
The journal sincerely apologises to its readers.
JFC
30,5
1342
Journalof Financial Crime
Vol.30 No. 5, 2023
pp. 1342-1366
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-07-2022-0170
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
1. Introduction
This study investigates whether female chief financial officers (CFOs) are associated with the
occurrences of financial reporting fraud. Extant research has focused on how female CFOs affect
earnings management (Liu et al., 2016;Alkebsee et al., 2021a;Fang et al.,2022;Liu et al., 2021;
Jiang et al.,2022;Christensen et al., 2022). Financial reporting fraud and earnings management are
not synonymous. Those are different. We take financial reporting fraud as a focus of the study, as
it has a tremendous effect on society and beyond. According to a recent work completed by the
Association of Certified Fraud Examiners (ACFE) (2022), compared to other categories of
occupational fraud, financialreporting fraud is the least common but costliest fraud category.
Similarly, Gupta et al. (2020) mentionthat financial reporting fraud is the most prevalent
fraud scheme in the US listed companies, and the consequences are usually significant. If
referring to KPMG’s (2020) study, the fraud cases in the US-listed companies are attributed
to compliance issues. In corporate settings, the compliance issues often attributed to the
cases of fraud and earning management are primarily related to the CFOs’primary duties
(Christensen et al., 2022). Given their oversight and advisory responsibility, CFOs play an
essential role in controlling the quality of financial reporting. Then they can significantly
affect accountingquality (Osma et al.,2022).
The idea of our study linking CFO gender with financial reporting fraud emerges from
prior studies, suggesting that firms with female CFOs are always associated with a higher
quality of accruals than firms with maleCFOs (Arun et al.,2015;Li et al., 2021;Janahi et al.,
2021). They argue that female CFOs are more conservative than male CFOs in financial
reporting. They also note that femaleCFOs are more cautious and less aggressive than men
in a variety of decision-makingcontexts. A similar view can be seen in the work of Taleatu
et al. (2020) that female CFOs are likelyto be more ethical in their judgement and behaviour
than men. So it is acceptable to expectthat female CFOs are less likely to encourage financial
reporting fraud and helpcompanies reduce opportunistic behaviours.
Substantially, the current study is to answer a recent call on a study whether female CFOs can
constrain financial reporting fraud (Luo et al.,2020;Sakawa and Watanabel, 2021). There has
been extensive theoretical and empirical work on the causes and consequences of financial
reporting fraud. For example, many prior studies document a positive relationship between board
diversity and accounting fraud (Maulidi, 2022;Wang et al., 2022;Wahid, 2019;Ning et al.,2022;
Pathak et al.,2021). Another study suggests that gender diversity on boards serves as a
significant moderator for fraudulent occurrences (Cumming et al.,2015), but they do not observe
the role of female CFOs. We believe that, to date, there has been less work exclusively exami ning
whether female CFOs are positively or negatively associated with the frequency and severity of
financial reporting fraud (Velte, 2021, conducting a systematic study for further review). We seek
to address this research gap with a closer look at the US firms’fraudcharacteristics.
We take the US setting as a focus of study becauseof some critical reasons. First, a study
linking female CFOs and financial reportingfraud based on the US firm samples is lacking.
Second, many institutionalfeatures in the US market are not really mature yet. For example,
the recent Ellahie and Kaplan’s (2021) study highlights that the nature of the US capital
market and, in some senses, reflects political goals. They examine the association between
dividend smoothing and agency conflicts by differentiating it in terms of institutional
qualities. The result shows that even thoughthe nature of the US capital market is found as
a semi-strong institution, it can still potentially encourage insiders of a company to
exacerbate firm-levelinformation and act in their interests.
Additionally, Ellahie and Kaplan(2021) find that a firm within non-strong institutions is
often associated with a higher speedof adjustment to the dividendpayment. In this respect,
future investors can scepticallyview the delay of dividend payment. As a result, firms with
Occurrences of
financial
reporting
fraud
1343
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