CEO Demographics, Board Gender Diversity and Financial Statements Fraud among Listed Firms in East Africa Community
DOI:
https://doi.org/10.53819/81018102t2441Abstract
The fraudulent activities have resulted in significant financial losses for the companies, amounting to millions or billions of globally. Furthermore, financial statements fraud significantly undermines the credibility of financial reports and assertions. Fraud in financial statement entails significant manipulation of financial statements with the intention of deceiving users. Despite the contributions of prior studies that sought to determine the CEO demographics and financial statements fraud relationship, the findings are incongruent. Additionally, the study determined whether board gender diversity moderates the relationship between. A sample of 62 listed firms in East Africa partner states. Panel data for the period 2012 -2023 was used. Data was handpicked from financial reports and the study employed the F-score model to measure financial statements fraud. While the hypotheses were tested using probit regression. The findings revealed that CEO age and financial expertise had a negative effect on FSF. While, CEO tenure and gender had a positive effect on FSF age. Finally, the findings revealed that board gender diversity moderated the relationship between CEO age, CEO gender, CEO financial expertise, CEO tenure and FSF. The findings of this study may inform corporate governance setters in developing codes that mitigates the likelihood of firms engaging in fraudulent financial reporting practices. This study was limited to listed firms in EAC, future studies may consider other regions.
Keywords: CEO Demographics, East Africa, Financial Statements Fraud, Board Gender Diversity
References
ACFE (2020). Report to the nations, 2020 Global study on occupational fraud and abuse. Association of Certified Fraud Examiners.
Ali, A., & Zhang, W. (2015). CEO tenure and earnings management. Journal of accounting and economics, 59(1), 60-79.
Bedard, J. C., Hoitash, R., Hoitash, U., & Westermann, K. (2012). Material weakness remediation and earnings quality: A detailed examination by type of control deficiency. Auditing a Journal of Practice & Theory, 31(1), 57-78.
Bhasin, M. (2016). Frauds in the banking sector: experience of a developing country. Asian Journal of Social Sciences and Management Studies, 3(1), 1-9.
Borgi, H., Ghardallou, W., & AlZeer, M. (2021). The effect of CEO characteristics on financial reporting timeliness in Saudi Arabia. Accounting, 7(6), 1265-1274.
Bouaziz, D., Salhi, B., & Jarboui, A. (2020). CEO characteristics and earnings management: empirical evidence from France. Journal of Financial Reporting and Accounting, 18(1), 77-110.
Brahma, S., Nwafor, C., & Boateng, A. (2021). Board gender diversity and firm performance: The UK evidence. International Journal of Finance & Economics, 26(4), 5704-5719.
Buchholz, F., Lopatta, K., & Maas, K. (2020). The deliberate engagement of narcissistic CEOs in earnings management. Journal of Business Ethics, 167, 663-686.
Carter, D. A., Simkins, B. J., & Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial review, 38(1), 33-53.
Conyon, M. J., & He, L. (2016). Executive compensation and corporate fraud in China. Journal of Business Ethics, 134, 669-691.
Dah, M. A., Jizi, M. I., & Kebbe, R. (2020). CEO gender and managerial entrenchment. Research in International Business and Finance, 54, 101237.
Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. G. (2011). Predicting material accounting misstatements. Contemporary accounting research, 28(1), 17-82.
Eagly, A. H., Carli, L. L., & Carli, L. L. (2007). Through the labyrinth: The truth about how women become leaders (Vol. 11). Boston, MA: Harvard Business School Press.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. The journal of law and Economics, 26(2), 301-325.
Fernández, Z., & Nieto, M. J. (2006). Impact of ownership on the international involvement of SMEs. Journal of international business studies, 37, 340-351.
Gallo, M. A., & Pont, C. G. (1996). Important factors in family business internationalization. Family Business Review, 9(1), 45-59.
Ghafoor, A., Zainudin, R., & Mahdzan, N. S. (2019). Corporate fraud and information asymmetry in emerging markets: Case of firms subject to enforcement actions in Malaysia. Journal of Financial Crime, 26(1), 95-112.
Ghodrati Zoeram, A., Azinfar, K., Nabavi Chashmi, S. A., & Dadashi, I. (2021). Chief Executive Officer's (CEO) Testosterone Level and Fraudulent Financial Reporting. Empirical Research in Accounting, 11(3), 27-46.
Gibbons, R. S., & Murphy, K. J. (1992). Does executive compensation affect investment?. NBER Working Paper, (w4135).
Girau, E. A., Kee, D. K. H. A., Bujang, I., & Jidwin, A. P. (2019). The empirical analysis of corporate fraud and corporate governance in Malaysia. The Business and Management Review, 10(3), 168-175.
Graves, C., & Thomas, I. (2006). Internationalization of Australian family businesses: A managerial capabilities perspective. Family business review, 19(3), 207-224.
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of management review, 9(2), 193-206.
Hermalin, B. E., & Weisbach, M. S. (1998). Endogenously chosen boards of directors and their monitoring of the CEO. American economic review, 96-118
Hoitash, R., Hoitash, U., & Bedard, J. C. (2008). Internal control quality and audit pricing under the Sarbanes‐Oxley Act. Auditing: A Journal of Practice & Theory, 27(1), 105-126.
Huang, H. W., Rose-Green, E., & Lee, C. C. (2012). CEO age and financial reporting quality. Accounting horizons, 26(4), 725-740.
Iyoha, A. O. I., & Akhor, S. O. (2022). CEO attributes and financial reporting quality among deposit money banks listed in Nigeria Stock Exchange.
Kimani, P. (2015). The effect of forensic accounting services on corporate crime mitigation among listed firms in the Nairobi securities exchange (Doctoral dissertation, University of Nairobi).
Kinyua, J. K., Gakure, R., Gekara, M., & Orwa, G. (2015). Effect of risk management on the financial performance of companies quoted In the Nairobi Securities Exchange. International Journal of Business & Law Research, 3(4), 26-42.
Lara, J. M. G., Osma, B. G., & Penalva, F. (2016). Accounting conservatism and firm investment efficiency. Journal of accounting and economics, 61(1), 221-238.
Luo, J. H., Peng, C., & Zhang, X. (2020). The impact of CFO gender on corporate fraud: Evidence from China. Pacific-Basin Finance Journal, 63, 101404.
Masruroh, S., & Carolina, A. (2022). Beneish model: Detection of indications of financial statement fraud using CEO characteristics. Asia Pacific Fraud Journal, 7(1), 85-101.
Maulidi, A. (2023). Gender board diversity and corporate fraud: empirical evidence from US companies. Journal of Financial Crime, 30(2), 309-331.
Meckling, W. H., & Jensen, M. C. (1976). Theory of the Firm. Managerial Behavior, Agency Costs and Ownership Structure.
Mishra, C. S., & McConaughy, D. L. (1999). Founding family control and capital structure: The risk of loss of control and the aversion to debt. Entrepreneurship theory and practice, 23(4), 53-64.
Mudrack, P. E. (1989). Age-related differences in Machiavellianism in an adult sample. Psychological Reports, 64(3_suppl), 1047-1050.
Ngo, D. N. P., & Nguyen, C. V. (2024). Does the CEO’s financial and accounting expertise affect the financial reporting quality? Evidence from an emerging economy. Journal of Financial Reporting and Accounting, 22(3), 653-676.
Opiyo, J. (2017). The Role of Forensic Accounting Services in Fraud Mitigation Among Kenyan Public Institutions a Case of Parastatals in Kenya (Doctoral dissertation, University of Nairobi).
Osei Bonsu, C., Liu, C., & Yawson, A. (2024). The impact of CEO attributes on corporate decision-making and outcomes: a review and an agenda for future research. International Journal of Managerial Finance, 20(2), 503-545.
Park, K. (2017). Pay disparities within top management teams and earning management. Journal of Accounting and Public Policy, 36(1), 59-81.
Pfeffer, J., & Salancik, G. R. (1978). The external control. New York.
Rahman, M. M., Saima, F. N., & Jahan, K. (2020). The impact of financial leverage on firm's profitability: an empirical evidence from listed textile firms of Bangladesh. Asian Journal of Business Environment, 10(2), 23-31.
Rao, K., & Tilt, C. (2016). Board composition and corporate social responsibility: The role of diversity, gender, strategy and decision making. Journal of business ethics, 138, 327-347.
Serfling, M. A. (2014). CEO age and the riskiness of corporate policies. Journal of corporate finance, 25, 251-273.
St Hadijah, A. (2022). Pengaruh Faktor Manajerial, Kepemilikan, Tekanan Eksternal dan Penghindaran Pajak terhadap Kecurangan Pelaporan Keuangan pada Perusahaan yang Tercatat di BEI. Journal of Applied Management and Business Research (JAMBiR), 2(2), 136-141.
Throckmorton, C. S., Mayew, W. J., Venkatachalam, M., & Collins, L. M. (2015). Financial fraud detection using vocal, linguistic and financial cues. Decision Support Systems, 74, 78-87.
Troy, C., Smith, K. G., & Domino, M. A. (2011). CEO demographics and accounting fraud: Who is more likely to rationalize illegal acts?. Strategic Organization, 9(4), 259-282.
Wahyuningtyas, E. T. (2022). The incidence of accounting fraud is increasing: is it a matter of the gender of chief financial officers?. Journal of Financial Crime, 29(4), 1420-1442.
Wang, Y., Yu, M., & Gao, S. (2022). Gender diversity and financial statement fraud. Journal of Accounting and Public Policy, 41(2), 106903.
