Effects of Board Diversity on the Earning Quality of Non-Financial Firms Listed on the Ghana Stock Exchange
DOI:
https://doi.org/10.54536/ajfti.v1i1.2049Keywords:
Board Diversity, Earnings Quality, Ghana Stock Exchange, Non-Financial FirmsAbstract
To maximize wealth, corporate finance must carefully balance cash flows and the cost of capital for a corporation, which results in corporate governance. Corporate governance guarantees openness, responsibility, equity, the organization’s long-term financial health, investor credibility, and the optimization of investor wealth. The study aimed to determine how board diversity affected the profitability of non-financial listed companies on the Ghana Stock Exchange with a specific focus on the effects of gender diversity, age diversity, and nationality diversity on earnings quality. The study used a descriptive design and a quantitative research methodology. The data were examined and reviewed using SPSS version 23, STATA 14, and Excel. The study used secondary data that was collected for a period of 11 years (2011-2021) from the financial accounts of the five (5) non-financial institutions that were listed on the GSE. From the perspective of non-financial listed firms on the Ghana Stock Exchange, the study found that gender diversity and nationality diversity significantly influence earnings quality but age diversity does not have a significant impact on the earnings quality of non-financial listed companies on the Ghana Stock Exchange. The study also recommended that management of publicly traded companies consciously adopt more diverse boards, especially in terms of gender diversity because it is associated with an increase in earnings quality.
References
Abbadi, S. S., Hijazi, Q. F. and Al-Rahahleh, A. S., (2016). Corporate governance quality and earnings management: Evidence from Jordan. Australasian Accounting, Business and Finance Journal, 10(2), 54-75.
Adeabah, D., Gyeke-Dako, A., & Andoh, C. (2019). Board gender diversity, corporate governance and bank efficiency in Ghana: a two stage data envelope analysis (DEA) approach. Corporate Governance: The International Journal of Business in Society, 19(2), 299-320.
Ahmed, M. G., Ganesan, Y., Hashim, F. And Sadaa, A. M., (2021). The effect of chairman tenure on governance and earnings management: A case study in Iraq. The Journal of Asian Finance, Economics and Business, 8(3), 1205-1215.
Ain, Q. U., Yuan, X., Javaid, H. M., Zhao, J. and Xiang, L., 2021. Board gender diversity and dividend policy in Chinese listed firms. Sage Open, 11(1), 2158244021997807.
Ali, M. F., Joyes, G., & Ellison, L. (2015). Proposing the third generation of an aligned activity system as a theoretical framework in blended learning research. Jurnal Teknologi, 75(3), 61-66.
Almomania, D. T., Ayedhb, D. A. and Almoanic, P. M., (2020). The Effects of the Family Ownership Structure on the Relationship between Board of Directors and Earnings Quality: Evidence Manufacturing Firms in Amman Stock Exchange. governance, 29(7), 13005-13015.
Alves, S., (2014). The effect of board independence on the earnings quality: evidence from Portuguese listed companies. Australasian Accounting, Business and Finance Journal, 8(3), 23-44.
Alves, S., (2021). CEO duality, earnings quality, and board independence. Journal of Financial Reporting and Accounting.
Amihud, Y., Mendelson, H., & Pedersen, L. H. (2006). Liquidity and asset prices. Foundations and Trends® in Finance, 1(4), 269-364.
Ararat, M., Aksu, M. H., & Tansel Cetin, A. (2010). The impact of board diversity on boards’ monitoring intensity and firm performance: evidence from the Istanbul Stock Exchange. Available at SSRN 1572283.
Ayuso, S. Argandona (2007), Responsible corporate governance: towards a stakeholder board of directors (Vol. 701). Working Paper.
Barako, D. G., & Brown, A. M. (2008). Corporate social reporting and board representation: evidence from the Kenyan banking sector. Journal of management & governance, 12, 309-324.
Barbuto Jr, J. E., & Wheeler, D. W. (2006). Scale development and construct clarification of servant leadership. Group & organization management, 31(3), 300-326.
Benjamin, O. M., & Tenai, J. (2018). Effect of age diversity on dividend policy in Kenya. International Journal of Advances in Management, Economics and Enterprenuership, 5(8), 1-6.
Boadi, I., & Osarfo, D. (2019). Diversity and return: the impact of diversity of board members’ education on performance. Corporate Governance: The International Journal of Business in Society, 19(4), 824-842.
Brennan, N. M., & Solomon, J. (2008). Corporate governance, accountability and mechanisms of accountability: an overview. Accounting, Auditing & Accountability Journal, 21(7), 885-906.
Busirin, M. F., Azmi, N. A. and Zakaria, N. B., (2015). How effective is board independence in the monitoring of earnings manipulation? Procedia Economics and Finance, 31, 462-469.
Cabrera-Suárez, M. K., & Martín-Santana, J. D. (2015). Board composition and performance in Spanish non-listed family firms: The influence of type of directors and CEO duality. BRQ Business Research Quarterly, 18(4), 213-229.
Carter, D., D’Souza, F. P., Simkins, B. J., & Simpson, W. G. (2007). The diversity of corporate board committees and firm financial performance. Available at SSRN 972763.
Chapple, L. and Humphrey, J. E., 2014. Does board gender diversity have a financial impact? Evidence using stock portfolio performance. Journal of business ethics, 122(4), 709-723.
Cheung, Y. W., & Lai, K. S. (1995). Lag order and critical values of the augmented Dickey–Fuller test. Journal of Business & Economic Statistics, 13(3), 277-280.
Conyon, M. J., & Peck, S. I. (1998). Board size and corporate performance: evidence from European countries. The European journal of finance, 4(3), 291-304.
Darmadi, S. (2011). Board diversity and firm performance: The Indonesian evidence. Corporate ownership and control Journal, 8.
De Cuyper, N., Notelaers, G. and De Witte, H., 2009. Job insecurity and employability in fixed-term contractors, agency workers, and permanent workers: associations with job satisfaction and affective organizational commitment. Journal of occupational health psychology, 14(2), 193.
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of accounting and economics, 50(2-3), 344-401.
Dimitrova, D., 2017. The impact of social ties and gender diversity on earnings quality.
Eka, H., 2018. Corporate finance and firm value in the Indonesian manufacturing companies. Business Studies, 11(2), 113-127.
ElMoatasem Abdelghany, K. (2005). Measuring the quality of earnings. Managerial Auditing Journal, 20(9), 1001-1015.
Erhardt, N. L., Werbel, J. D., & Shrader, C. B. (2003). Board of director diversity and firm financial performance. Corporate governance: An international review, 11(2), 102-111.
Fidanoski, F., Simeonovski, K., & Mateska, V. (2014). The impact of board diversity on corporate performance: New evidence from Southeast Europe. In Corporate governance in the US and global settings, 17, 81-123. Emerald Group Publishing Limited.
Francis, J., LaFond, R., Olsson, P., & Schipper, K. (2003). Earnings quality and the pricing effects of earnings patterns. Available at SSRN 414142.
Hair, E., Halle, T., Terry-Humen, E., Lavelle, B., & Calkins, J. (2006). Children’s school readiness in the ECLS-K: Predictions to academic, health, and social outcomes in first grade. Early Childhood Research Quarterly, 21(4), 431-454.
Haruna, D., Kwambo, L. M. and Hassan, S. U., (2018). Board characteristics and earnings quality of listed conglomerate firms in Nigeria. Scholedge International Journal of Business Policy & Governance, 5(3), 14-37.
Hashim, F., Ahmed, E. R. and Huey, Y. M., (2019). Board diversity and earning quality: Examining the role of internal audit as a moderator. Australasian Accounting, Business and Finance Journal, 13(4), 73-91.
Hashim, H.A. and Devi, S., (2008). Board characteristics, ownership structure, and earnings quality: Malaysian evidence. In Corporate governance in less developed and emerging economies. Emerald Group Publishing Limited.
Hillman, A. J., Cannella, A. A., & Paetzold, R. L. (2000). The resource dependence role of corporate directors: Strategic adaptation of board composition in response to environmental change. Journal of Management studies, 37(2), 235-256.
Hoang, T.C., Abeysekera, I. and Ma, S., (2017). The effect of board diversity on earnings quality: An empirical study of listed firms in Vietnam. Australian Accounting Review, 27(2), 146-163.
Hohenfels, D., (2016). Auditor tenure and perceived earnings quality. International Journal of Auditing, 20(3), 224-238.
Horn, C. and Brem, A., (2013). Strategic directions on innovation management–a conceptual framework. Management research review.
Ianniello, G., (2015). The effects of board and auditor independence on earnings quality: evidence from Italy. Journal of management & Governance, 19(1), 229-253.
Jensen, M. C., & Meckling, W. H. (1979). Rights and production functions: An application to labor-managed firms and codetermination. Journal of business, 469-506.
Jensen, M. C., & Murphy, K. J. (1990). CEO incentives: It’s not how much you pay, but how.
Kazemi Olum, M. and Abdi, M., (2019). Impacts of gender diversity in the board of directors and audit committee on earnings quality. Journal of Knowledge Accounting, 10(1), 137-168.
Keasler, T. R., Goff, D. C., & Perfect, S. B. (1997). Event Risk Bond Covenants and Shareholder Wealth: Evidence from Convertible Bonds. Journal of Financial And Strategic Decisions, 10(3), 37-41.
Khan, A. W. and Abdul Subhan, Q., 2019. Impact of board diversity and audit on firm performance. Cogent Business & Management, 6(1), 1611719.
Kouaib, A. and Almulhim, A., 2019. Earnings manipulations and board’s diversity: The moderating role of audit. The Journal of High Technology Management Research, 30(2), 100356.
Kukah, M. A., Amidu, M., & Abor, J. Y. (2016). Corporate governance mechanisms and accounting information quality of listed firms in Ghana. African Journal of Accounting, Auditing and Finance, 5(1), 38-58.
Lazonick, W., 2014. Profits without prosperity. Harvard Business Review, 92(9), 46-55.
Lenz, A. S., Henesy, R. and Callender, K., (2016). Effectiveness of seeking safety for co‐occurring posttraumatic stress disorder and substance use. Journal of Counseling & Development, 94(1), 51-61.
Lyimo, G. D., (2014). Assessing the measures of quality of earnings: Evidence from India. European Journal of Accounting Auditing and Finance Research, 2(6), 17-28.
Makhlouf, M. H., Al-Sufy, F. J. and Almubaideen, H., (2018). Board diversity and accounting conservatism: Evidence from Jordan. International Business Research, 11(7), 130-141.
Marra, A. and Mazzola, P., (2014). Don’t judge a book by its cover: The influence of independent directors’ busyness and tenure on earnings quality. Available at SSRN 2374002.
Owen, N. (2018). Effect of board diversity on earnings management in listed manufacturing and allied companies in Kenya (Doctoral dissertation, University of Nairobi).
Perryman, A. A., Fernando, G. D., & Tripathy, A. (2016). Do gender differences persist? An examination of gender diversity on firm performance, risk, and executive compensation. Journal of Business Research, 69(2), 579-586.
Ruigrok, W., Peck, S., & Tacheva, S. (2007). Nationality and gender diversity on Swiss corporate boards. Corporate governance: an international review, 15(4), 546-557.
Schipper, K., & Vincent, L. (2003). Earnings quality. Accounting horizons, 17, 97-110.
Shen, H., Xiong, H., Zheng, S., and Hou, F., (2021). Chief executive officer (CEO)’s rural origin and internal control quality. Economic Modelling, 95, 441-452.
Sonnenfeld, J. A. (2002). What makes great boards great. Harvard business review, 80(9), 106-113.
Teets, W. R. (2002). Quality of earnings: An introduction to the issues in accounting education special issue. Issues in Accounting Education, 17(4), 335-360.
Van den Berghe, L. A. A., & Baelden, T. (2005). The complex relation between director independence and board effectiveness. Corporate Governance: The international journal of business in society, 5(5), 58-83.
Van der Walt, N., & Ingley, C. (2003). Board dynamics and the influence of professional background, gender and ethnic diversity of directors. Corporate governance: An international review, 11(3), 218-234.
Van Ness, R. K., Miesing, P., & Kang, J. (2010). Board of director composition and financial performance in a Sarbanes-Oxley world. Academy of Business and Economics Journal, 10(5), 56-74.
Yu, F. F. (2008). Analyst coverage and earnings management. Journal of financial economics, 88(2), 245-271.
Zalata, A. M., Ntim, C. G., Alsohagy, M. H. and Malagila, J., (2022). Gender diversity and earnings management: the case of female directors with financial background. Review of Quantitative Finance and Accounting, 58(1), 101-136.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2023 Timothy Masuni Nagriwum, Wiredu Richard, Newman Amaning, Matthew Kuunyigr
This work is licensed under a Creative Commons Attribution 4.0 International License.
