Do female directors improve the ability of Ind-AS to mitigate earnings management? Evidence from Indian-listed Companies

Abstract

This study aims at analysing if female directors make Indian Accounting Standards (Ind-AS) effective in improving accounting quality. Though the introduction of Ind-AS was to enhance the transparency and convergence with International Financial Reporting Standards (IFRS), it is still unclear how much the benefits would rely on the corporate governance mechanisms. Based on agency theory and the resource dependence theory, this study examines the interaction between female directors and the relationship between the adoption of Ind-AS and accrual earnings management (AEM). Discretionary accruals (DAC) and performance-adjusted discretionary accruals (PDAC) are used as proxies for earnings management using a sample of 290 Indian listed companies. Fixed-effects and pooled OLS regression models are estimated. The results show that there is no significant impact of the adoption of Ind-AS on earnings management. But female directors are linked to less earnings management. Most importantly, the relationship between Ind-AS and female directors is positive and statistically significant, suggesting that the presence of female directors enhances the effectiveness of Ind-AS in reducing managerial discretion and enhancing accounting quality. The results indicate that accounting standards may not be an effective means of enhancing the quality of accounting information. Improved board monitoring with good gender diversity goes hand in hand with accounting reform and improves financial reporting quality.