Gender board diversity and corporate fraud: empirical evidence from US companies
| DOI | https://doi.org/10.1108/JFC-02-2022-0038 |
| Published date | 21 March 2022 |
| Date | 21 March 2022 |
| Pages | 309-331 |
| Subject Matter | Accounting & finance,Financial risk/company failure,Financial crime |
| Author | Ach Maulidi |
Gender board diversity and
corporate fraud: empirical
evidence from US companies
Ach Maulidi
Accounting Department, Binus Graduate Program, Bina Nusantara University,
Jakarta Barat, Indonesia
Abstract
Purpose –This study aimsto examine the effect of gender board diversity oncorporate fraud. Particularly,
it is to gain empirical evidence whether firms with more female corporate leaders are more (less) likely to
engage in corporatefraud.
Design/methodology/approach –The authors use data of fraudfirms from Accounting and Auditing
Enforcement Releases.As a focus of the study, the authors take the fraud sample observationsfrom the last
10 years, from 2011 to 2021. Theidea is that the number of firms sectioned due to corporate fraud reacheda
peak in suchperiods.
Findings –In the context of non-state-owned enterprise environments, the authors find female corporate
leaders are less likely to engagein corporate fraud. However, among firms with a state-owned background,
the authors’empiricalevidence shows that the roles of female corporate leaders remainunder-represented in
the boardrooms. As reported,the presence of female corporate leaders does not bring a significant impact on
enhancing group ethicaldecision-making and governance quality. This situation doesappear when political
connectionsbetween firms and governments or politicians are prevalent.
Research limitations/implications –This study has practical and theoreticalimplications. Given the
increased pressure on companies around the globe to have more females in their boardrooms, this study
provides insight into the effectof female corporate leaders on the prevalence of corporate fraud. As such, this
study offers critical consideration for policymakers and regulators. Moreover, an analysis of whether and
when the gender board diversity is associated with the firm’propensity to perpetrate corporate fraud,
particularlyfrom the US corporate fraud, is sorely lacking.This study contributes to such gaps.
Originality/value –This study provides insightful discussion about the topical issue of whether, and
under what circumstances,female corporate leaders influence (or do not influence)corporate fraud.
Keywords Gender board diversity, Female corporate leaders, Corporate fraud
Paper type Research paper
1. Introduction
The increasing number of women in corporate leadership positions has sparked a lot of
curiosity about whethermale and female corporate leaders are connected withdifferent firm
behaviour (Wiley and Monllor-Tormos,2018). Some researchers have argued that corporate
actions will not be influenced by gender board diversity because there are no cognitive
differences between males and females(Khan and Vieito, 2013;Triana et al.,2014). Men and
women are basically just different in how they express their feelings, not how to they
address a particular issue (B
aez et al., 2018). On the other hand, others have proposed that
men and women think and behave in different ways (Strydom et al., 2017), resulting in
different businessoutcomes (Sarhan et al.,2019).
To advance knowledge about the impact of gender board diversity on firms decisions
and actions (Wiley and Monllor-Tormos, 2018), as well as its effects on corporate
Gender board
diversity and
corporate
fraud
309
Journalof Financial Crime
Vol.30 No. 2, 2023
pp. 309-331
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-02-2022-0038
The current issue and full text archive of this journal is available on Emerald Insight at:
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malfeasance, we examine whether and when the gender board diversity is associated with
the firm’propensity to perpetrate corporate fraud. We define corporate fraud as one of the
financial crimes focusing on the deliberate misrepresentation of corporate financial
statements. Currently, to the best of the authors’knowledge, no single theory directly
predicts the nature of the relationshipbetween gender board diversity and factual corporate
fraud, but several theories from various fields provide insight into the issue. For example,
theories from economic, organisational and psychological domains contribute to a better
understanding of the nature of the link between gender boarddiversity and earning quality
(Yarram and Adapa, 2021;Schwartz-Ziv,2017).
According to a regular professional study (KPMG, 2020), most US companies are more
likely to experience a combinedloss from fraud, compliance issues and regulatory fines. As
reported, 85% of companies suffered internalfraud, approximately over $10bn. Meanwhile,
55% of companies paid regulatory finesdue to compliance violations. Separately, American
Edition Association of Certified Fraud Examiners/ACFE (2020) provides statistics about
occupational fraud from the US context.They find that asset misappropriation occurs in the
vast majority of fraud schemes (77% of cases), but these schemes tend to cause the lowest
median loss at US$100,000 per case. In contrast, financial statement fraud schemes are the
least common (19% of schemes) butthe costliest category of occupational fraud (the median
loss at US$2,000,000). The third category, corruption, falls in the middle in terms of both
frequency and financial damage. These schemes occur in 51% of cases and cause a median
loss of US$425,000.
Because the board of directors are in charge of the management of the company’s
business (Abdou et al.,2021;Alam et al.,2020) and are responsible for ensuring that the
company meets its statutory obligations (Gallego-Álvarez and Pucheta-Martínez, 2020),
increased attentionhas been focused on the relationship between the characteristicsof board
directors, including females representation on corporate leaderships, and corporate
behaviour (Kliestik et al.,2021). Given the growing pressure on firms to have morefemales
in top management roles (Duppati et al.,2020), understanding how gender board diversity
impacts corporate fraud can be valuable for researchers, policymakers, regulators and the
general public. Due to gender differences in ethics and risk taking (Doan and Iskandar-
Datta, 2020), we propose that female corporate leaders are less likely to involve in a firm’s
propensity to perpetrate corporate fraud. Our study also suggests that boards’corporate
ethical behaviour is based on the faulty assumption that when boards are made up of only
men, they will be morallyand ethically responsible for dealing with corporatefraud.
Our understanding of the impacts of female corporate leaders on corporate fraud based
on the factual fraud cases in the US companies is sorely lacking. Most of the studies are
generated based on Asian perspective (Liao et al., 2019;Kong et al., 2019;Luo et al.,2020).
The governance practices at the US companiesprovide a unique context in which to better
understand how female corporate leaders influence corporate ethical behaviour. For
example, the board composition, directordemographics and governance practices at the US
public companies are positivelyassociated with the political backgrounds of board directors
(Carter et al., 2010). Additionally, in the US context, many family-owned companies have a
relatively low stakeholderorientation (Ding and Wu, 2014) and poor protection for minority
shareholders (Blodgettet al.,2011). It is not surprising to see if they do not meet stakeholder
expectations to bring greater gender diversity to the boardroom and are likely to commit
corporate misconduct (Ding and Wu, 2014). We argue that this unique configuration of
institutional attributes may provide results that differ from the mainstream literature. So,
failure to consider the unique context of US companies mayresult in corporate governance
recommendationsthat are counterproductive in terms of board diversity.
JFC
30,2
310
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