Article Sidebar

Download
Full text PDF
Statistic
Read Counter : 500 Download : 597

Downloads

Download data is not yet available.

Main Article Content

Abstract

This study scrutinises how the diversity of a board of directors (BOD) determines the financial reporting quality (FRQ) and how firm size may act in a moderating role. FRQ has two measurments, which are faithful representation and relevance. Faithful representation has one proxy, which is financial restatement. Relevance has two proxies, which are the predictive value and confirmatory value. Moreover, a board’s diversity includes its members’ gender, age, expertise and educational level. The research sample consists of companies listed on the Indonesia Stock Exchange from 2016 to 2020; this produced 377 firms, resulting in 1,885 observations; we used panel data. Boards are homogeneous, except for boards with accounting expertise. Male directors can reduce the potential for financial restatements, but when moderated by firm size, they cannot guarantee the predictive value. Moreover, old directors can also reduce financial misconduct, but unqualified opinions are difficult to obtain when moderated by firm size. Further, a BOD without a member holding a doctoral degree can have a significant adverse effect on financial restatements and agency conflict. Agency conflict is the ultimate result of a negative predictive value. Meanwhile, board expertise boosts the fairness of financial reporting, resulting in obtaining an unqualified opinion and providing a predictive value. The fundamental qualitative characteristics of financial reporting must offer a relevant and faithful representation, while the previous studies employed this separately; this study tackles that gap. The previous research that tested corporate governance on FRQ is still very limited and tends to focus on one topic (e.g. gender), so our research is more comprehensive since BOD diversity was investigated. The FRQ worsens because the BOD is homogeneous. Based on the findings, the FRQ can be improved if there are female directors, younger directors, and directors who hold PhDs serving on the boards. This means that their presence/proportion must increase.

Keywords

financial reporting quality, financial restatement, relevance, board diversity, firm size

Article Details

Creative Commons License

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

How to Cite
Tan, C., & Taufiik, M. (2022). Board diversity and financial reporting quality: does firm size matter?. Journal of Contemporary Accounting, 4(2), 80–94. https://doi.org/10.20885/jca.vol4.iss2.art2
Download Citation
Endnote/Zotero/Mendeley (RIS)
BibTeX

References

  1. Abbott, L. J., Parker, S., & Presley, T. J. (2012). Female board presence and the likelihood of financial restatement. Accounting Horizons, 26(4), 607–629. https://doi.org/10.2308/acch-50249
  2. Abdollahi, A., Rezaei Pitenoei, Y., & Safari Gerayli, M. (2020). Auditor’s report, auditor’s size and value relevance of accounting information. Journal of Applied Accounting Research, 21(4), 721–739. https://doi.org/10.1108/JAAR-11-2019-0153
  3. Almaqtari, F. A., Hashed, A. A., Shamim, M., & Al-Ahdal, W. M. (2020). Impact of corporate governance mechanisms on financial reporting quality: A study of indian gaap and indian accounting standards. Problems and Perspectives in Management, 18(4), 0–14. https://doi.org/10.21511/ppm.18(4).2020.01
  4. Alzoubi, E. S. S. (2014). Board characteristics and financial reporting quality: Evidence from Jordan. Corporate Ownership and Control, 11(3), 8–29. https://doi.org/10.22495/cocv11i3p1
  5. Buallay, A., & Hamdan, A. (2019). The relationship between corporate governance and intellectual capital: The moderating role of firm size. International Journal of Law and Management, 61(2), 384–401. https://doi.org/10.1108/IJLMA-02-2018-0033
  6. Call, A. C., Campbell, J. L., Dhaliwal, D. S., & Moon, J. R. (2017). Employee quality and financial reporting outcomes. Journal of Accounting and Economics, 64(1), 123–149. https://doi.org/10.1016/j.jacceco.2017.06.003
  7. Chrisman, J. J. (2019). Stewardship theory: Realism, relevance, and family firm governance. Entrepreneurship: Theory and Practice, 43(6), 1051–1066. https://doi.org/10.1177/1042258719838472
  8. Collis, J., Holt, A., & Hussey, R. (2012). Conceptual framework for financial reporting. Business Accounting, September 2010, 112–128. https://doi.org/10.1007/978-1-137-00662-2_5
  9. Davis, J. G., & Garcia-Cestona, M. (2021). Financial reporting quality and the effects of CFO gender and board gender diversity. Journal of Financial Reporting and Accounting. https://doi.org/10.1108/JFRA-12-2020-0360
  10. Fernández-Temprano, M. A., & Tejerina-Gaite, F. (2020). Types of director, board diversity and firm performance. Corporate Governance (Bingley), 20(2), 324–342. https://doi.org/10.1108/CG-03-2019-0096
  11. Githaiga, P. N., Kabete, P. M., & Bonareri, T. C. (2022). Board characteristics and earnings management . Does firm size matter ? Board characteristics and earnings management . Cogent Business & Management, 9(1). https://doi.org/10.1080/23311975.2022.2088573
  12. Habib, A., & Bhuiyan, M. B. U. (2016). Problem directors on the audit committee and financial reporting quality. Accounting and Business Research, 46(2), 121–144. https://doi.org/10.1080/00014788.2015.1039477
  13. Kaawaase, T. K., Nairuba, C., Akankunda, B., & Bananuka, J. (2021). Corporate governance, internal audit quality and financial reporting quality of financial institutions. Asian Journal of Accounting Research, 6(3), 348–366. https://doi.org/10.1108/AJAR-11-2020-0117
  14. Katmon, N., Mohamad, Z. Z., Norwani, N. M., & Farooque, O. A. (2019). Comprehensive Board diversity and quality of corporate social responsibility disclosure: Evidence from an emerging market. Journal of Business Ethics, 157(2), 447–481. https://doi.org/10.1007/s10551-017-3672-6
  15. Krismiaji, Anni Aryani, Y., & Suhardjanto, D. (2016). International Financial Reporting Standards, board governance, and accounting quality A preliminary Indonesian evidence. Asian Review of Accounting, 24(4), 474–497. https://doi.org/10.1108/ARA-06-2014-0064
  16. Li, H., & Chen, P. (2018). Board gender diversity and firm performance: The moderating role of firm size. Business Ethics, 27(4), 294–308. https://doi.org/10.1111/beer.12188
  17. Madison, K., Holt, D. T., Kellermanns, F. W., & Ranft, A. L. (2016). Viewing Family Firm Behavior and Governance Through the Lens of Agency and Stewardship Theories. Family Business Review, 29(1), 65–93. https://doi.org/10.1177/0894486515594292
  18. Mahadeo, J. D., Soobaroyen, T., & Hanuman, V. O. (2012). Board composition and financial performance: Uncovering the effects of diversity in an emerging economy. Journal of Business Ethics, 105(3), 375–388. https://doi.org/10.1007/s10551-011-0973-z
  19. Manita et al. (2020). Does board gender diversity affect firm performance? The mediating role of innovation on the French stock market. International Journal of Entrepreneurship and Small Business, 39(1-2), 263-278. https://doi.org/10.1504/IJESB.2020.10025935
  20. María Consuelo Pucheta-Martínez, Inmaculada Bel-Oms, G. O.-S. (2018). The association between board gender diversity and financial reporting quality, corporate performance and corporate social responsibility disclosure: A literature reviewNo Title. Emerald Insight, 31(1). https://www.emerald.com/insight/content/doi/10.1108/ARLA-04-2017-0110/full/html?fullSc=1
  21. Mohsin, A.A., Halim, H.A., Ahmad, N.H. (2015). Competitive Intelligence Among SMEs: Assessing the Role of Entrepreneurial Attitude Orientation on Innovation Performance. In: Bilgin, M., Danis, H., Demir, E., Lau, C. (eds) Innovation, Finance, and the Economy. Eurasian Studies in Business and Economics, vol 1. Springer, Cham. https://doi.org/10.1007/978-3-319-15880-8_2
  22. Okon Akpan, E. (2014). Board Characteristics and Company Performance: Evidence from Nigeria. Journal of Finance and Accounting, 2(3), 81. https://doi.org/10.11648/j.jfa.20140203.17
  23. Pathak, S., Samba, C., & Li, M. (2021). Audit committee diversity and financial restatements. In Journal of Management and Governance (Vol. 25, Issue 3). Springer US. https://doi.org/10.1007/s10997-020-09548-4
  24. Smith, N. (2018). Gender quotas on boards of directors. IZA World of Labor, Vol. 7 No. No. 2, pp. 1–10
  25. Srinidhi, B., Gul, F. A., & Tsui, J. (2011). Female directors and earnings quality. Contemporary Accounting Research, 28(5), 1610–1644. https://doi.org/10.1111/j.1911-3846.2011.01071.x
  26. Srivastava, A., & Muharam, H. (2021). Value relevance of accounting information during IFRS convergence period: comparative evidence between India and Indonesia. Accounting Research Journal, 35(2), 276–291. https://doi.org/10.1108/ARJ-04-2020-0070
  27. Taufik, M. (2021). The Influence of the BOD`s characteristics toward corporate social responsibility: Study non financial and financial firms in Indonesia. Jurnal Akuntansi & Auditing Indonesia, 25(2), 194–208. https://doi.org/10.20885/jaai.vol25.iss2.art9
  28. Taufik, M., & Chua, L. BOD characteristics and firm performances: Evidence from Indonesia. Sebelas Maret Business Review, 6(2), 99-110.
  29. Waelchli, U., & Zeller, J. (2013). Old captains at the helm: Chairman age and firm performance. Journal of Banking and Finance, 37(5), 1612–1628. https://doi.org/10.1016/j.jbankfin.2012.12.012
  30. Wahid, A. S. (2019). The effects and the mechanisms of board gender diversity: evidence from financial manipulation. Journal of Business Ethics, 159(3), 705–725. https://doi.org/10.1007/s10551-018-3785-6
  31. Xu, Y., Zhang, L., & Chen, H. (2018). Board age and corporate financial fraud: An interactionist view. Long Range Planning, 51(6), 815–830. https://doi.org/10.1016/j.lrp.2017.08.001