Due to the recent prevalence of minorities and women in the workforce, the pool of potential candidates for board positions has recently experienced change. The diversification of these top tier positions necessitates a deeper look so as to establish if diversity affects organizational performance or if positions should be issued out only to demonstrate equality and lack of discrimination (Erhardt et al., 2003). There is a need to measure the impact of diversity on earnings management (EM) while also gaining insight how this affects firm performance.
Members of the board of directors have to display strategic decision making and this may lead to the assumption that organizations with greater board of director diversity experience better performance levels than less diverse boards. Diverse boards have a positive effect and increase firm financial performance, though it is not clear how this increased performance is achieved ( Alqatan, 2019; Erhardt et al., 2003). Furthermore, gender diversity, average age and nationality diversity have all been shown to have a negative association with earnings management, although this study was limited to a certain geographical location and does not establish the relationship between the variables ( Alqatan, 2019 ). Corporate governance principles control the director’s behavior and the size of the board as well as the independence of its members are the main variables that affect earnings management ( Abed et al., 2012; García ‐ Meca, & Sánchez ‐ Ballesta, 2009 ). However, these studies do not account for or look at the role of board diversity as a variable that affects EM.
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Present research shows that board diversity affects both the EM and FP of an organization. However, the consequences of diversity have not measured the relationship of the variables to establish how they affect performance and earnings management. Additionally, the role of board diversity as a variable on earnings management has not been established.
References
Abed, S., Al-Attar, A., & Suwaidan, M. (2012). Corporate governance and earnings management: Jordanian evidence. International Business Research , 5 (1), 216.
Alqatan, Ahmad. "The association between board diversity, earnings management and firm performance in Kuwait: a research agenda." Corporate Governance: Search for the Advanced Practices . Virtus Press, 2019.
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.
García ‐ Meca, E., & Sánchez ‐ Ballesta, J. P. (2009). Corporate governance and earnings management: A meta ‐ analysis. Corporate governance: an international review , 17 (5), 594-610.
