Skip to main content

Advertisement

SpringerLink
Log in

Getting to the Bottom Line: An Exploration of Gender and Earnings Quality

  • Published:
Journal of Business Ethics Aims and scope Submit manuscript

Abstract

For stakeholders, such as investors and lenders, to appropriately assess a company’s financial performance, the reported accounting earnings must closely reflect the economic reality of the organization’s financial activity throughout the reporting period. The degree to which reported earnings capture economic reality is called earnings quality. Managers have an ethical obligation to report high quality earnings to interested stakeholders in a timely matter. Accounting research has identified conditions within an organization, such as management compensation contracts and pending litigation that can impact earnings quality. We extend this line of research by exploring whether another characteristic of an organization, gender diversity in senior management, influences the quality of reported earnings. Companies with more women in senior management are found to be more profitable and have higher stock returns after initial public offerings than those with fewer women in the management ranks. Our findings suggest that the improved bottom line for companies with more women senior executives is not produced through the management of earnings or lower quality earnings. Instead, earnings quality is positively associated with gender diversity in senior management.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Adler, R. D.: 2001. ‚Women in the Executive Suite Correlate to High Profits’, Glass Ceiling Research Center, Research study available at http://www.women2top.net/download/home/adler_web.pdf

  • Ahmed A. S., Billings B. K., Morton R. M., Stanford-Harris M. (2002) The Role of Accounting Conservatism in Mitigating Bondholder-Shareholder Conflicts over Dividend Policy and in Reducing Debt Costs. The Accounting Review 77 (4):867–890

    Google Scholar 

  • Al-Hayale, T. and G. Lan: 2004. The Effect of Gender on the Ethical Attitudes of Jordanian Managers and Auditors toward Earning Management’, Presented at the Annual Meeting of the American Accounting Association in Orlando, FL

  • Ball R. (2001) Infrastructure Requirements for an Economically Efficient System of Public Financial Reporting and Disclosure. In: Litan R.E., Herring R. (eds.) Brookings-Wharton Papers on Financial Services. Brookings Institute Press, Washington DC, pp. 127–182

    Google Scholar 

  • Ball R., Kothari S. P., Robin A. (2000) The Effect of International Institutional Factors on Properties of Accounting Earnings. Journal of Accounting and Economics 29 (1):1–51

    Article  Google Scholar 

  • Barber B. M., Odean T. (2001) Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment. The Quarterly Journal of Economics 116 (1):261–292

    Article  Google Scholar 

  • Basu S. (1997) The Conservatism Principle and the Asymmetric Timeliness of Earnings. Journal of Accounting and Economics 24 (1):3–37

    Article  Google Scholar 

  • Beaver W., Engel E. (1996) Discretionary Behavior with Respect to Allowances for Loan Losses and the Behavior of Security Prices. Journal of Accounting and Economics 22 (1–3):177–206

    Article  Google Scholar 

  • Bernardi, R. A. and D. F. Arnold: 1997. ‚An Examination of Moral Development within Public Accounting by Gender, Staff Level, and Firm’, Contemporary Accounting Research 14 (4):653–668

  • Betz M., O’Connell L., Shepard J. M. (1989) Gender Differences in Proclivity for Unethical Behavior. Journal of Business Ethics 8 (5):321–324

    Article  Google Scholar 

  • Bhattacharya U., Daouk H., Welker M. (2003) The World Price of Earnings Opacity. The Accounting Review 78 (3):641–678

    Google Scholar 

  • Bliss R. T., Potter M. E. (2002) Mutual Fund Managers: Does Gender Matter?. Journal of Business and Economic Studies 8 (1):1–15

    Google Scholar 

  • Bruns W. J. Jr., Merchant K. A. (1990) The Dangerous Morality of Managing Earnings. Management Accounting 72 (2):22–25

    Google Scholar 

  • Burgstahler D., Dichev I. (1997) Earnings Management to Avoid Earnings Decreases and Losses. Journal of Accounting and Economics 24 (1):99–126

    Article  Google Scholar 

  • Carter D. A., Simkins B. J., Simpson W. G. (2003) Corporate Governance, Board Diversity, and Firm Value. The Financial Review 38 (1):33–54

    Article  Google Scholar 

  • Catalyst: 2004, ‚The Bottom Line: Connecting Corporate Performance and Gender Diversity’, Research report available at http://www.catalystwomen.org/knowledge/titles/files/full/financialperformancereport.pdf

  • Clikeman P. M., Geiger M. A., O’Connell B. T. (2001) Student Perceptions of Earnings Management: The Effects of National Origin and Gender. Teaching Business Ethics 5:389–410

    Article  Google Scholar 

  • Collins D. W., Kothari S. P. (1989) An Analysis of Intertemporal and Cross-sectional Determinants of Earnings Response Coefficients. Journal of Accounting and Economics 11 (2–3):143–181

    Article  Google Scholar 

  • Degeorge F., Patel J., Zeckhauser R. (1999) Earnings Management to Exceed Thresholds. The Journal of Business 72 (1):1–33

    Article  Google Scholar 

  • Ford R. C., Richardson W. D. (1994) Ethical Decision Making: A Review of the Empirical Literature. Journal of Business Ethics 13 (3):205–221

    Article  Google Scholar 

  • Francis J., LaFond R., Olsson P. M., Schipper K. (2003) Costs of Equity and Earnings Attributes. The Accounting Review 79 (4):967–1010

    Google Scholar 

  • Giner B., Rees W. (2001) On the Asymmetric Recognition of Good and Bad News in France, Germany, and the United Kingdom. Journal of Business Finance and Accounting 28 (9/10):1285–1331

    Article  Google Scholar 

  • Givoly D., Hayn C. (2000) The Changing Time-series Properties of Earnings, Cash Flows and Accruals: Has Financial Reporting Become More Conservative?. Journal of Accounting and Economics 29 (3):287–320

    Article  Google Scholar 

  • Givoly, D., C. Hayn and A. Natarajan: 2004. ‚Measuring Reporting Conservatism’, Working Paper, Pennsylvania State University, University of California – Los Angeles, and Californai State University – Pomona, available on SSRN at http://papers.ssrn.com/sol3/papers.cfm?abstract_id = 606841

  • Hall S. C., Stammerjohan W. W. (1997) Damage Awards and Earnings Management in the Oil Industry. The Accounting Review 72 (1):47–65

    Google Scholar 

  • Healy P. M. (1985) The Effect of Bonus Schemes on Accounting Decisions. Journal of Accounting and Economics 7: 85–107

    Article  Google Scholar 

  • Healy P. M., Wahlen J. M. (1999) A Review of the Earnings Management Literature and its Implications for Standard Setting. Accounting Horizons 13 (4):365–383

    Google Scholar 

  • Holthausen R. W., Watts R. L. (2001) The Relevance of the Value-relevance Literature for Financial Accounting Standard Setting. Journal of Accounting and Econmics 31 (1–3):3–75

    Article  Google Scholar 

  • Jones J. J. (1991) Earnings Management During Import Relief Investigations. Journal of Accounting Research 29:193–228

    Article  Google Scholar 

  • Kormendi R., Lipe R. (1987) Earnings Innovations, Earnings Persistence, and Stock Returns. The Journal of Business 60 (3):323–345

    Article  Google Scholar 

  • Lang M., Raedy J. S., Yetman M. H. (2003) How Representative are Firms That are Cross-listed in the United States? An Analysis of Accounting Quality. Journal of Accounting Research 41 (2):363–386

    Article  Google Scholar 

  • Leuz C., Nanda D., Wysocki P. D. (2003) Earnings Management and Investor Protection: An International Comparison. Journal of Financial Economics 69 (3):505–527

    Article  Google Scholar 

  • Owhoso V. (2002) Mitigating Gender-specific Superior Ethical Sensitivity When Assessing Likelihood of Fraud Risk. Journal of Managerial Issues 14 (3):360–374

    Google Scholar 

  • Pope P., Walker M. (1999) International Differences in the Timeliness, Conservatism, and Classification of Earnings. Journal of Accounting Research 37:53–87

    Article  Google Scholar 

  • Ryan S. G., Zarowin P. A. (2003) Why Has the Contemporaneous Linear Returns-Earnings Relation Declined?. The Accounting Review 78 (2):523–553

    Google Scholar 

  • Schipper K., Vincent L. (2003) Earnings Quality. Accounting Horizons 17:97–110

    Google Scholar 

  • Welbourne, T. M.: 1999. Wall Street Likes Its Women: An Examination of Women in the Top Management Teams of Initial Public Offerings Working Paper, Cornell University Center for Advanced Human Resource Studies, available at http://www.ilr.cornell.edu/depts/cahrs/PDFs/WorkingPapers/WP99–07.pdf

Download references

Author information

Authors and Affiliations

  1. School of Management, George Mason University, 4400 University Drive, MSN 5F4, Fairfax, VA, 22030, USA

    Gopal V. Krishnan & Linda M. Parsons

Authors
  1. Gopal V. Krishnan
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Linda M. Parsons
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Linda M. Parsons.

Additional information

Gopal Krishnan is an associate professor and holds the VSCPA Northern Chapter Professorship in Public Accounting at the School of Management at George Mason University. He has published several articles on corporate governance and the role of auditors in journals such as Accounting Horizons, Contemporary Accounting Research, Journal of Accounting, Auditing and Finance and Auditing: A Journal of Practice & Theory.

Linda Parsons is an assistant professor at the School of Management at George Mason University. She is the author of several papers that examine the value relevance of accounting in the nonprofit sector, especially as it impacts decision-making by donors. Her work has appeared in journals such as Journal of Accounting, Auditing and Finance, Research in Governmental and Nonprofit Accounting, and Journal of Accounting Literature.

Rights and permissions

Reprints and permissions

About this article

Cite this article

Krishnan, G.V., Parsons, L.M. Getting to the Bottom Line: An Exploration of Gender and Earnings Quality. J Bus Ethics 78, 65–76 (2008). https://doi.org/10.1007/s10551-006-9314-z

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10551-006-9314-z

Keywords

Search

Navigation