Board gender diversity, audit quality, and the moderating role of political connections: evidence from the Gulf Co-operation Council Countries (GCC)

• Date: 30 July 2024
• Pages: 828-857
• DOI: https://doi.org/10.1108/IJAIM-11-2023-0286
• Published date: 30 July 2024
• Author: Abiot Tessema,Ammad Ahmed,Muhammad Kaleem Zahir-ul-Hassan

Board gender diversity, audit

quality, and the moderating role of

political connections: evidence

from the Gulf Co-operation

Council Countries (GCC)

Abiot Tessema

Department of Accounting, College of Business, Zayed University,

Abu Dhabi Campus, Abu Dhabi, United Arab Emirates

Ammad Ahmed

Department of Accounting, College of Business Administration,

University of Sharjah, Sharjah, United Arab Emirates, and

Muhammad Kaleem Zahir-ul-Hassan

Department of Accounting, College of Business, Zayed University, Abu Dhabi Campus,

Abu Dhabi, United Arab Emirates

Abstract

Purpose –This study aims to examine the inf‌luenceof board gender diversity on audit quality demand,

considering auditor choice and auditefforts within the Gulf Co-operation Council (GCC) countries. It further

examines the role of political connections and the impact of gender equality policy initiatives on this

relationship.

Design/methodology/approach –Fixed-effects regression models are employed in a sample of 1,822

f‌irm-year observations forf‌inancial f‌irms across the GCC from 2011–2022 to test the hypotheses. Moreover,

the two-stage-least-squaresand the propensity score matchingmethods are used for sensitivity analysis.

Findings –The study shows a negative relationship betweenboard gender diversity and the demand for

audit quality, ref‌lected auditor choice and audit efforts. However, the study shows a positive association

between f‌irm’s politicalconnections and audit quality demand, which is more pronouncedin gender-diverse

boards. Policy initiatives for gender equality show no signif‌icant effect on the relationship between board

gender diversityand audit quality demand.

Practical implications –The results inform governments, policy-makers, regulatory authorities and

corporations by providingnew evidence on the relationship betweenboard gender diversity and the demand

for audit quality, as well as the moderating role of political connections and policy initiatives in this

relationship. To promote the meaningful participation of female directors in board decision-making, the

f‌indings indicatethat gender stereotypes, both explicit and implicit,that can hinder female directors’inf‌luence

in board decision-making need to be addressed. Second, the study underscores for governments, policy-

makers regulatory authorities and corporations that the mere appointment of female directors does not

This research was supported by Zayed University Research Incentive Fund (RIF) Grant under Grant

No. R21085.

Declaration of non-conf‌lict of interest: The authors conf‌irm that they have no any conf‌lict of

interest in connection to the manuscript.

IJAIM

32,5

828

Received14 November 2023

Revised4 February 2024

Accepted22 June 2024

InternationalJournal of

Accounting& Information

Management

Vol.32 No. 5, 2024

pp. 828-857

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-11-2023-0286

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/1834-7649.htm

necessarily ensure their engagementin board decision-making. The appointment of female directors should

go beyond symbolismand translate into meaningful engagement and inf‌luencewith the board.

Originality/value –This studycontributes to the corporate governance literatureby offering new insights

on the link between boardgender diversity and the demand for audit quality.Beyond conf‌irming a negative

relationship between board gender diversity and the demand for quality audit, this study provides new

insights on the moderating role of a f‌irm’s political connections on this relationship. In addition, existing

studies are primarily based on f‌irms in Western countries and cannot be generalized due to differences in

governanceand legal structures. Given that the GCC countrieshave different cultures, economies, institutions,

governance practicesand norms compared to developed and emerging countries, our study offers a pertinent

discussionon the relationship between board gender diversity and the demand for audit quality,as well as the

moderatingrole of political connections in this relationshipin the GCC countries.

Keywords Board gender diversity, Audit fee, Audit quality, Political connections,

Corporate governance, GCC

Paper type Research paper

1. Introduction

Established in 1981, the Gulf Cooperation Council (GCC) comprises Bahrain, Kuwait, Oman,

Qatar, Saudi Arabia and the United Arab Emirates (UAE), with the primary goals of fostering

economic and political collaboration, enhancing regional stability, addressing common

challenges and strengthening collective bargaining power on the international stage

(Benbouziane and Benmar, 2010;Al-Yahyaee et al., 2017). Over the years, the organization has

played a crucial role in fostering economic integration, joint defence initiatives and coordination

on various political issues, contributing to the overall development and cohesion of the member

states (Al-Yahyaee et al., 2017). As oil-rich countries, the GCC nations have leveraged their

abundant natural resources to drive economic growth and diversif‌ication strategies. The region

exhibits distinctive cultural, religious and societal characteristics that differentiate them from

Western societies. With a deep connection to a diverse Arabheritage, these countries prioritize

traditional values, familial bonds and communal responsibilities, while facing issues like

gender inequality and the impact of political connections (Al-Shammari et al.,2008).

Recently, governments in the Gulf Co-operation Council Countries (GCC) have been

strongly pushing the gender equality agenda and encouraging companies to consider the

issue of gender diversity. Given the differences in culture, economics, institutions,

governance practices, and norms in comparison to developed countries and emerging

countries, we argue that it is ultimately an empirical issue whether board gender diversity

affects a f‌irm’s outcomesin this context. Therefore, the purpose of this study is twofold:

(1) to examine whether board gender diversity inf‌luences the demand for higher audit

quality using a sample of f‌irms from the GCC region; and

(2) to investigate the moderating role of f‌irm’s political connections and the impact of

gender equality policy initiatives on the inf‌luence of board gender diversity on the

demand for higher audit quality.

Gender diversity on corporate boards has signif‌icantly gained importance, and the

female directors’underrepresentation on such boards has been a longstanding concern

in many countries and industries over the last decades (Schneid et al., 2015). Some

countries have introduced quotas and requirements to encourage gender diversity on

boards. For example, the European Union has enacted legislation mandating

corporations to increase gender diversity on theirboards (Carte r etal ., 2003;Adams and

Ferreira, 2009;Lai et al., 2017). Motivated by these initiatives, prior studies examine the

impact of board gender diversity and show that gender diverse boards are more likely

Moderating

role of political

connections

829