Board gender reforms and voluntary disclosure: International evidence from management earnings forecasts

• Published date: 01 September 2024
• Author: Yujie Wang,Muhammad Nadeem,Ihtisham Malik,Ling Xiong
• Date: 01 September 2024
• DOI: http://doi.org/10.1111/corg.12569

ORIGINAL ARTICLE

Board gender reforms and voluntary disclosure: International

evidence from management earnings forecasts

Yujie Wang

1

| Muhammad Nadeem

2

| Ihtisham Malik

2

| Ling Xiong

2

1

School of Accounting & Finance, Hong Kong

Polytechnic University, Hong Kong, Hong

Kong

2

UQ Business School, The University of

Queensland, Brisbane, Queensland, Australia

Correspondence

Muhammad Nadeem, UQ Business School,

The University of Queensland, Brisbane,

Queensland, Australia.

Email: nadeem@business.uq.edu.au

Abstract

Research Question/Issue: This study examines the relationship between boardroom

gender diversity reforms (BGDRs) and corporate voluntary disclosure in the form of

management earnings forecasts (MEFs) in a sample of 43 countries over the period

2000 to 2020.

Research Findings/Insights: Taking advantage of the staggered adoption of the gen-

der diversity reforms that aim to improve women's representation on boards, we find

that firms exhibit a greater propensity for and frequency of issuing MEFs. These find-

ings hold for both governance-based and legislation-based reforms but are stronger

for the latter. Furthermore, we find stronger results (a) when female directors possess

higher financial expertise and serve on board sub-committees, (b) when board activity

(meetings and attendance) improved following BGDRs, (c) for firms that had all-male

boards before the reforms and where gender diversity increased shortly after the

reforms, and (d) for countries with greater legal enforcement and gender equality.

Our findings are robust using the stacked difference-in-differences approach and

alternative samples, models, and fixed effects. In addition, we find that, after the

reforms, there is an increase in the forecast horizon, forecast width, bad news disclo-

sure, accuracy, and the number of disaggregated forecast items.

Theoretical/Academic Implications: Our study provides the first international and

comprehensive evidence of the positive role of board gender reforms in the corpo-

rate information environment and offers vital policy implications.

Practitioner/Policy Implications: Our study informs the ongoing debate regarding

the effectiveness of and business case for gender diversity reforms. By documenting

a causal link between BGDRs and voluntary disclosure, our study provides important

implications for policymakers, regulators, investors, and top management teams.

KEYWORDS

corporate governance, board gender diversity reforms, management earnings forecasts,

voluntary disclosure

Received: 14 March 2023 Revised: 9 October 2023 Accepted: 5 December 2023

DOI: 10.1111/corg.12569

This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which permits use and distribution in any

medium, provided the original work is properly cited, the use is non-commercial and no modifications or adaptations are made.

© 2024 The Authors. Corporate Governance: An International Review published by John Wiley & Sons Ltd.

890 Corp Govern Int Rev. 2024;32:890–914.

wileyonlinelibrary.com/journal/corg

1|INTRODUCTION

Over the past two decades, there has been a surge in boardroom gender

diversity reforms (BGDRs) worldwide. Since 2003, when Norway became

the first country to require listed firms to have at least 40% female direc-

tors on board, 26 countries have gradually enacted similar gender diver-

sity reforms (Fauver et al., 2022; Mensi-Klarbach & Seierstad, 2020;

Poletti-Hughes & Dimungu-Hewage, 2023). One of the United Nations

Sustainable Development Goals (UNSDGs) clearly discourages gender

discrimination in the workplace (see UN Resolution 70/1, the 2030

Agenda). Although prior studies find an increase in boardroom gender

diversity after the reforms (Poletti-Hughes & Dimungu-Hewage, 2023),

these reforms still attract much debate as to whether such reforms

increase firm value (e.g., Klettner et al., 2016). Some proponents argue

that greater boardroom gender diversity can enhance corporate gover-

nance, improve firm performance, and add social benefits (Abbott

et al., 2012;Y.Chenetal.,2016; Eagly & Carli, 2003;Gyapong

et al., 2021; Hillman et al., 2007). In contrast, some opponents argue that

governance-based BGDRs may not be strongly enforced as the level of

boardroom gender diversity is still very low globally. Such reforms, even

if legislated for greater enforcement, may lead to a shortage of suffi-

ciently experienced female directors, and firms employing younger and

less experienced female board members may experience deteriorating

business operations (Poletti-Hughes & Dimungu-Hewage, 2023). With

these contradicting and debatable effects of BGDRs on firm outcomes,

this study aims to extend this line of research by providing novel evi-

dence on the impact of BGDRs on corporate voluntary disclosure in the

form of management earnings forecasts (MEFs).

We choose to examine corporate voluntary disclosure, in particu-

lar MEFs, because MEFs are important channels for managers to influ-

ence investors' earnings expectations, preempt litigation concerns,

and reduce information asymmetry between firm insiders and external

investors (Cao et al., 2017; Hirst et al., 2008; Houston et al., 2019;

W. Li et al., 2019; Tsang et al., 2019). As MEFs are forecasts of earn-

ings before the earnings announcements and are voluntarily provided

by firms' managers, MEFs are perceived as more important informa-

tion sources for investors than other information channels, such as

earnings announcements (Beyer et al., 2010).

However, whether BGDRs can affect voluntary disclosure, partic-

ularly MEFs, remains an unopened blackbox. On one hand, the enact-

ment of BGDRs may result in more voluntary disclosures for three

reasons. First, to the extent that BGDRs increase the gender diversity

of firms, firms may have better corporate governance due to historical

views that female directors are more ethical and independent with

better communication and monitoring skills (Guedhami et al., 2014;

Gul et al., 2011; Gull et al., 2022; Srinidhi et al., 2011; Stulz, 2005;

Zalata et al., 2019). When firms' corporate governance is improved, it

mitigates managers' incentives to withhold information for personal

interests and encourages the firms to disclose more information to

outside investors (Eng & Mak, 2003; Zaman et al., 2021). Second, as

female directors are more risk averse than male directors (Harrison

et al., 2007; Watson & McNaughton, 2007), firms with more female

directors vis-à-vis BGDRs may have greater incentives to provide

more voluntary disclosure to help reduce firm risk or the risks of being

sued for withholding information (Blacconiere & Patten, 1994;

Christensen, 2016; Toffel & Short, 2011). Third, the BGDRs tend to

attract more foreign investors (Fauver et al., 2022), which increases

the demand for information from the companies. Thus, BGDRs may

result in firms providing more voluntary disclosures to satisfy the

information needs of these investors (L. Chen et al., 2019).

On the other hand,firms may reduce the extent of voluntarydisclo-

sure after the enactment of BGDRs due to a variety of reasons. First,

according to the opponents of board gender reforms, corporate gover-

nance may even getworse after the reforms due to inexperienced and

less-qualified female directorsbeing appointed to the board,which may

result in opportunistic behavior by the management and less informa-

tion disclosure. Second, voluntary disclosure, such as MEFs, may

increase litigation and proprietary risks (Billings & Cedergren, 2015;

I. Kim & Skinner, 2012; Rogers et al., 2011; Rogers & Van

Buskirk, 2009). Hence, to the extentthat female directors are more risk

averse, firms may disclose less information after the gender diversity

reforms.Third, relative to male directors, female directorsare more con-

servative (Francis et al., 2015), which may lead firms to avoidvoluntary

disclosureafter BGDRs. Given these conflictingarguments, and increas-

ing BGDRs aroundthe world, it is vital to explore whatimpacts BGDRs

have on firms'voluntary disclosure practices, particularlyMEFs.

We answer this question based on a large dataset of 80,402 firm-

year observations from 15,650 listed firms located in 43 countries for

the period 2000–2020. Taking advantage of the staggered enactment

of gender diversity reforms, we implement a difference-in-differences

(DiD) approach to examine the impact of BGDRs on MEFs. Our main

results revealthat firms increasedthe extent of MEFs after the reforms.

Our results are economically significant too, that is, the enactment of

BGDRs leads to a subsequent increase in the issuance (frequency) of

MEFs by 5.02%(35.28%) from the mean value.We further find that this

relationship is stronger for legislation-based reforms than governance

code-based reforms. We also find that the results are stronger (in both

magnitudeand significance) whenfemale directors possess higherfinan-

cial expertise and when they serve on board sub-committees. Our

cross-sectional tests at the firm level reveal more pronounced results

for firms that are more likely to be affected by the reforms, that is,

(1) firms with all-male directors prior to the reforms and (2) firms that

increased gender diversity after the reforms. Our country-level cross-

sectional tests indicate more pronounced results for firms in countries

with greater law enforcement and gender equality. This is because

reforms are more effective in countries with greater law enforcement

(Blake& Moschieri, 2017), and femaledirectors are less likely to be sym-

bolic in countries with greatergender equality (Post& Byron, 2015).

Due to the concern that staggered DiD may cause the bias of the

treatment effects in the presence of treatment effect heterogeneity

(Baker et al., 2022;Barrios,2021; Cengiz et al., 2019), we followFauver

et al. (2022) and implement the stacked DiD regression and rerun our

estimation. Our results still hold. We further conduct multiple tests,

including (1)alternative samples that exclude the United States (i.e., the

county that is more representative in our sample), (2) alternative sam-

ples, (3)alternative models,(4) alternative fixedeffects, and (5) additional

controls of boardsize, board independence,and passage of board inde-

pendencereforms. We continue to findconsistent results.

WANG ET AL.891