Gender diversity in employees and discretionary accruals: the Korean evidence

• Published date: 06 August 2018
• DOI: https://doi.org/10.1108/IJAIM-07-2016-0068
• Pages: 362-383
• Date: 06 August 2018
• Author: Hyun Ah Kim,Seok Woo Jeong
• Subject Matter: Accounting & Finance,Accounting/accountancy,Accounting methods/systems

Gender diversity in employees

and discretionary accruals:

the Korean evidence

Hyun Ah Kim

School of Industrial Management, Korea University of Technology and Education,

Cheonan City, Korea, and

Seok Woo Jeong

Business School (Accounting), Korea University, Seongbok-gu, Korea

Abstract

Purpose –This paper aims to investigatethe relation between gender diversity in employees and earnings

quality. Specifically, how gender diversity among full-time and part-time employees is associated with

discretionaryaccruals in Korea is examined.

Design/methodology/approach –The author analyzes the association between women ratio among

full-time (part-time) employees and discretionary accruals by using 3,687 firm-years of Korean listed

companies from 2010 to 2012. The regression model used in Barua et al. (2010)is adopted. The dependent

variables, the absolute value of discretionaryaccruals, are proxied by the Modified Jones Model of Dechow

et al. (1995) and the PerformanceMatched Model of Kothari et al. (2005).

Findings –First, a higherratio of women among full-time workers is related to lowerdiscretionary accruals,

whereas that of part-time female employees is not related to discretionary accruals. Second, the effect of

gender diversityin employees varies depending on the possibility of earnings management.Third, the results

are robust with sample firm-years without female executives, thereby suggesting that the results are not

driven by the existenceof female executives, and robust to accounting standardsand firm-year clustering.

Originality/value –This paper expands the understanding about the determination of discretionary

accruals by demonstrating the impact of full-time female employees on earnings quality. Previous studies

demonstrated that female workers are more ethical in the workplace, and the quality of accounting

information disclosed by firms with female CFOs or directors, i.e. high ranking officers, is higher. It is

observed that accounting information quality is higher when firms simply have more female workers,

regardlessof their relative position in the firm. This complements the results of previousstudies and indicates

gender diversityamong employees is a sign of accounting informationquality.

Keywords Discretionary accruals, Part-time employees, Gender diversity, Full-time employees

Paper type Research paper

1. Introduction

This study investigates the relation between gender diversity in employees and earnings

quality. Specifically, we examine how gender diversity among full-time and part-time

employees is associated with discretionary accruals in Korea. With the rapid increase of

educated and competent females in recent years, many countries have made efforts to use

talented females by requiring firms to hire more females in senior management. For

example, Norway passed a law to require listed firms to increase the female executive ratio

to more than 40 per cent by 2008, and the UK recommends that firms voluntarily increase

JEL classification –J16, J82, M14, M41

IJAIM

26,3

362

Received3 July 2016

Revised31 May 2017

17October 2017

Accepted19 November 2017

InternationalJournal of

Accounting& Information

Management

Vol.26 No. 3, 2018

pp. 362-383

© Emerald Publishing Limited

1834-7649

DOI 10.1108/IJAIM-07-2016-0068

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

www.emeraldinsight.com/1834-7649.htm

female executive ratio up to 25 per cent. With these changes, many researchers have

analyzed how female executives affectaccounting and financial decisions and find evidence

that firms with female executives are likely to report higher quality earnings than other

firms, whereas there is mixed evidence about the impact of female executives on financial

performances (Krishnanand Parsons, 2008;Adams and Ferreira, 2009;Barua et al.,2010;Ge

et al., 2011;Gul et al., 2011;Francis et al.,2015). These results are consistent with the risk

averse and ethical characteristics of female as documented by many previous studies in

sociology, psychology and economics(Tyson, 1990;Arlow, 1991;Johnson and Powell, 1994;

Ruegger and King, 1992;Crosonand Gneezy, 2009).

However, few studies examinedthe effect of female employees, rather than executives, on

accounting information quality. To extend that line of research, this paper looks into the

effect of female employees,who are at lower levels within firms, on the quality of accounting

information. Reported earningsare the outcome of operating workers as well as accounting

system and managers. Therefore, mistakes or distortions made at a journal entry stage of

accounting system can influence accounting quality. Thus, it would be interesting to look

into the relationship between genderdiversity in employees and earnings quality. If females

are more ethical than male, then firms with more female employees are likely to provide

higher quality accountinginformation.

In this study, we focus on whether female ratios among full-time employees and part-

time employees are differentially related to firms’discretionary accruals. According to

Mason and Mudrack (1996), women’s exposure to the workplaceshifts their focus toward a

communal emphasis, leading to significant gender differences between male and female

workers. The study provides evidence that the ethical gender differences exist only in full-

time employees. In addition to this, part-time workers are generally assigned to gender

specific jobs and are guided to work following manuals (Holden and Hansen, 1987).

Furthermore, given the importance of accounting information,it is less likely that part-time

employees engage in accountingaffairs. If female workers are ethically different only when

they are full-time employment, full-time gender diversity is expected to decrease

discretionary accruals,while part-time female ratio is not.

We analyze the association between women ratio amongfull-time (part-time) employees

and discretionary accruals by using3,687 firm-years of Korean listed companies from 2010

to 2012. We find that a higher ratio of women among full-time workers is related to lower

discretionary accruals, whereas part-time female employees have no association with

discretionary accruals. These results indicate that hiring more full-time women may

improve earnings quality,which is consistent with the results of Mason and Mudrack (1996).

Furthermore, this studyfinds that the effect of gender diversity in employees varieswhether

firms are associated with business groups in Korea, chaebols (family-run conglomerates),

and whether firms are likely to be involved with earnings management. This indicatesthat

women workers could reducediscretionary accruals when managers have littleincentives to

manage discretionary accruals on average. We also confirm our results are robust with

sample firm-years without female executives, thereby suggesting that our results are not

driven by the existence of female executives,and robust to accounting standards and firm-

year clustering.

Our paper extends the previous literature,which examines the effect of gender diversity

on earnings quality, by showing gender diversityamong full-time employees are negatively

associated with discretionary accruals. That is, we expand the understanding about the

determination of discretionary accruals by demonstrating the impact of full-time female

employees on earnings quality. Because previous studies, such as Betz et al. (1989) and

Sayre et al. (1991), among others, demonstrated that female workers aremore ethical in the

Gender

diversity in

employees

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