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CEO Gender, Ethical Leadership, and Accounting Conservatism

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Abstract

Since male CEOs dominate corporate leadership, the literature on top management decision making suffers from an implicit masculine bias. Although research indicates that males and females are biologically and psychologically different, the leadership characteristics of female CEOs are largely unexplored. Two of these characteristics, risk aversion and ethical sensitivity, are tied to key accounting issues, such as conservatism in financial reporting and steadfast opposition to fraud. In this study, we examine the relationship between CEO gender and accounting conservatism, and find a positive association between the two. Consistent with conventional wisdom, this association appears to be stronger in firms with high rather than low litigation and takeover risks. This study contributes to the ethics literature by highlighting the benefits of gender diversity in upholding the integrity of financial reporting.

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Notes

  1. Regarding the potential problem of multicollinearity, severe existence of such may lead to low significance of some variables and affect the reliability of some regression coefficients. We used the mean-centering method to determine and lower the VIF values (see Tables 2, 3, 4, 5, 6, 7), and found all these VIF values to be at acceptable levels (i.e., under 3). Further, most calculated tolerance levels were >0.8. Therefore, our findings can be interpreted with a greater degree of confidence.

  2. We would like to thank one of the reviewers for this suggestion.

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Acknowledgment

The authors wish to thank the editor, two anonymous reviewers and session participants at 2013 American Accounting Association Annual Meeting for helpful suggestions. We also gratefully acknowledge the recognition from the Gender Issues and Worklife Balance Section of American Accounting Association for the Best Paper Award. Zhang would like to express appreciation for the financial support from the National Natural Science Foundation of China (approval number: 71002058, 71202090, 71202091). All errors are ours.

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Authors and Affiliations

  1. University of Macau and Hang Seng Management College, Macao/Hong Kong, People’s Republic of China

    Simon S. M. Ho

  2. University of Massachusetts Lowell, Lowell, MA, USA

    Annie Yuansha Li

  3. State University of New York at Albany, Albany, NY, USA

    Kinsun Tam

  4. School of Management and Governance, Murdoch University, Perth, Western Australia, Australia

    Feida Zhang

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Appendix 1: Variable Definitions

Appendix 1: Variable Definitions

Variable

Definition

ACC

Total accruals. Defined as net income before extraordinary items (#IBC) minus cash flow from operating activities (#OANCF), scaled by total assets at the beginning of the fiscal year (#AT)

CFO

Operating cash flow (#OANCF) deflated by total assets at the beginning of the fiscal year (#AT)

DCFO

A dummy variable that equals one if CFO is negative, and zero otherwise

FCEO

A measure of CEO gender that equals one if the CEO is female, and zero otherwise

FASSET

Book value of fixed assets (#PPEGT) scaled by total assets at the beginning of the fiscal year (#AT)

CSALES

Change in sales (#SALE) scaled by total assets at the beginning of the fiscal year (#AT)

SIZE

The firm’s size calculated as the natural log of total assets at the end of the fiscal year

LEV

The firm’s leverage measured as the sum of long-term debt (#DLTT) and debt in current liabilities (#DLC) deflated by market value of equity at the end of the fiscal year

MB

The market-to-book ratio calculated as the market value of equity (#CSHO × #PRCC_F) divided by the book value of equity (#CEQ) at the end of the fiscal year

MV

The market value of equity (#CSHO × #PRCC_F) at the end of the fiscal year

ΔNI t

Change in net income before extraordinary items (#IB) in fiscal year t divided by total assets at the beginning of the fiscal year

ΔNI t−1

The change in net income before extraordinary items (#IB) in fiscal year t − 1 divided by total assets at the beginning of the fiscal year

DΔNI t−1

A dummy variable that equals one if ΔNI t−1 is negative, and zero otherwise

NI

NI is net income before extraordinary items (#IB) deflated by the beginning of period prices

RET

RET is accumulated market-adjusted stock returns from 9 months before fiscal year end to three months after fiscal year end

DR

A dummy variable that equals one if RET is negative, and zero otherwise

ACCDEP

ACCDEP is income before extraordinary items (#IB) less cash flows from operations (#OANCF) plus depreciation expenses (#DP) deflated by average total assets (#AT)

RDADV

RDADV is research and development (#XRD) plus advertising expenses (#XAD) scaled by total sales

GROWTH

Sales growth defined as the percentage of annual growth in total sales (#SALE)

LIT

LIT is a dummy variable that equals one if the firm is in a litigious industry, and zero otherwise. Following Francis et al. (1994), primary SIC codes of 2833–2836 (biotechnology), 3570–3577 (computer equipment), 3600–3674 (electronics), 5200–5961 (retailing), and 7370–7374 (computer services) are considered to represent litigious industries

ATR

An index of antitakeover risk introduced by Gompers et al. (2003). ATR is constructed from 24 Antitakeover Provisions (ATPs) published by RiskMetrics. A greater value of GINDEX indicates a lower risk of being taken over

DTR

DTR equals one if ATR is below the sample median, and zero otherwise

SMALL

SMALL equals one if SIZE is below the sample median, and zero otherwise

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Ho, S.S.M., Li, A.Y., Tam, K. et al. CEO Gender, Ethical Leadership, and Accounting Conservatism. J Bus Ethics 127, 351–370 (2015). https://doi.org/10.1007/s10551-013-2044-0

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  • DOI: https://doi.org/10.1007/s10551-013-2044-0

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