The incidence of accounting fraud is increasing: is it a matter of the gender of chief financial officers?
| DOI | https://doi.org/10.1108/JFC-10-2021-0230 |
| Published date | 14 December 2021 |
| Date | 14 December 2021 |
| Pages | 1420-1442 |
| Author | Endah Tri Wahyuningtyas,Aisyaturrahmi |
The incidence of accounting fraud
is increasing: is it a matter of the
gender of chief financial officers?
Endah Tri Wahyuningtyas
Department of Accounting, Universitas Nahdlatul Ulama Surabaya,
Surabaya, Indonesia, and
Aisyaturrahmi
Department of Accounting, Universitas Negeri Surabaya, Surabaya, Indonesia
Abstract
Purpose –The purposeof this paper is to examine the association betweenaccounting fraud and the gender
of chief financialofficers (CFOs).
Design/methodology/approach –This study uses a sampleof US-listed firms for the period from 2000
to 2010. This paper takes this distribution of the sample observations because firms sanctioned by the
Securities and Exchange Commission as reported in Accounting and Auditing Enforcement Releases for
fraud are more heavilyweighted in the 2000 to 2010 period.
Findings –This study provides considerable evidence to suggest that firms with female CFOs are
negatively associated with accounting fraud. The study also suggests that in state-owned enterprises, in
which political concerns are likely to be more pronounced, the relationship between female CFOs and
accounting fraud is negatively lesssignificant. This study conducts an additional test about when and why
boards’diversity reducesaccounting fraud or concerns. The result shows thatthe structure of gender-mixed
boards is better than male-only boards. Therefore, it is important to control the activities or decisions of
powerfulchief executive officers.
Research limitations/implications –In general, the findings contribute to the currentdiscussion on
the necessity of increasinggender diversity as a corporate governance mechanism. This study is specifically
focussed on CFOs that may directly have important implications for financial reporting and corporate
governance.
Originality/value –This paper extendsprior research by addressing the potential effectsof female CFOs
on accounting fraud. For example, Zhou et al. (2018) examine the relationship between executive
compensation and the incidence of corporate fraud in Chinese listed companies from the perspective of
delisting pressure.The result documents that there is no a relationship between CFO genderand accounting
fraud. The results, however,find that female CFOs are negatively associatedwith accounting fraud; meaning
that the presence of female CFOs brings positive implications for financial reporting and corporate
governance.
Keywords Corporate governance, Accounting fraud, State-owned companies,
Female chief financial officers
Paper type Research paper
1. Introduction
A survey by the Association of Certified Fraud Examiners(ACFE, 2020)finds that the vast
majority of fraud schemes (86%) include asset theft,which involves an employee taking or
misusing the employing organisation’s resources; yet, these schemes also have the lowest
median loss, at USD 100,000 per case. In contrast, financial statement fraud schemes, in
which the perpetrator intentionally causes a material misstatement or omission in the
JFC
29,4
1420
Journalof Financial Crime
Vol.29 No. 4, 2022
pp. 1420-1442
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-10-2021-0230
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
organisation’sfinancial statements, are the least common (10% of schemes) but a costliest
category of occupational fraud. The thirdcategory, corruption, which includes offences like
bribery, conflicts of interest and extortion, is in the centre of the spectrum in terms of
frequency and financial damage. These schemes are found in 43% of cases and result in a
median loss of USD 200,000.
In light of this recent waveof corporate fraud (ACFE, 2020), it has been heatedly debated
whether these events would be different if women were in charge of the firms. Of all senior
managers, the chief financial officer (CFO) has the most impact on a firm’sfinancial
reporting decisions (Zalata et al.,2021;Wang et al., 2021). Furthermore, regulators hold
CFOs accountable for firms’financial reports (Doan and Iskandar-Datta, 2020) as the CFO
has an important responsibility for the fair presentation of the company’sfinancial
statements and financialinformation (Ismail et al., 2021). However, despite the importanceof
CFOs in modern corporations (Xu et al., 2019), organisational researchers have largely
ignored the central role of the CFO as a key decision maker (Vähämaa, 2017). Moreover,
many prior studies examine whether executives’gender-based psychological differences
influence firm risk-taking behaviour, but the results of these studies are not conclusive
(Duong and Pallasch, 2021;AliAribi et al., 2021;Brinkhuis and Scholtens, 2018). We address
this omission and advance research on the impact of CFOs on corporate misconduct (Ham
et al.,2017), by examining whether CFO gender affectsfinancial misreporting or accounting
fraud.
More importantly, we onlyhave limited information about how much of the gender gaps
in career outcomes can be attributed to differences in performance of the firms they are
running. It seems impossible to establish a direct bridge from CFOs personal features, for
instance, gender, to accounting fraud, even though there is a recent evidence that CFOs
characteristics and ability are crucial for a corporatetransparency (Wang et al.,2021). This
issue is quite important as the differences in corporate fraud could partly be driven by the
differences in factorsrelated to chief executive officers (CEOs). For example, Chee and Tham
(2021) points out, even though female executives and directors may improve firm
performance and corporategovernance, the firms with stronger political connectionstend to
produce negative firms’performance. Based on data, CEO gender gaps in political
connections do exist in America; state-owned enterprises (SOEs) have additional political
concerns, for example,fraudulent activities (Shi et al., 2020). To the best of our knowledge,to
understand the CEO gender gaps in financial misreportingor accounting fraud, it is vital to
examine the political connections of CEOs by differentiating the sample of research into the
SOEs subsample and privatefirm subsample.
This study is primarily based on the examination of a sample that represents the most
extreme cases of low-quality financial reporting; that is, the Securities and Exchange
Commission (SEC)-identified frauds. Past CFO gender gaps literature has examined a
variety of samples and variables that serve as proxies for earnings management/reduced
audit quality (e.g. accruals variables, going concern opinions and earnings response
coefficients). However, identification of extremely low-quality financial reporting –such as
fraudulent financial statements that have been materially misstated –requires definitive
knowledge about motivation that researchers cannot establish merely from publicly
available financialstatement data.
In our study, we make no assumptions regarding management’s intentions or whether
our sample firms’financial statements were materially misstated. Rather, we position our
study on the information from the SEC’s vigorousinvestigation and subsequent publicising
of the firm fraud. Thus, since fraudulent (and hence low-quality) financial reporting has
been proven by the SEC, we focus on the potential association between this and CFOs
Gender of chief
financial
officers
1421
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