Making honest men of them: Institutional investors, financial reporting, and the appointment of female directors to all-male boards

Karen M Y Lai (1) , Mehdi Khedmati (2) , Ferdinand A Gul (3) , Matthew P Mount (4)

1 Shenzhen Audencia Business School, Shenzhen University
2 Monash university
3 USC - University of the Sunshine Coast
4 University of Adelaide

In this paper, we theorize that dedicated institutional investors are more likely than transient institutional investors to appoint female directors to investee firms with all-male boards, particularly those with high opacity. We conjecture that dedicated investors appoint female directors as a governance mechanism to improve the financial reporting quality of these investee firms. Specifically, we find that through the appointment of female directors, dedicated institutional investors trigger the release of stockpiled negative accounting information, thereby increasing the likelihood of a stock price crash risk. We also show that dedicated investors, through the appointment of female directors, improve investee firms' corporate disclosure environment by decreasing earnings management. Finally, we find that through continued service on investee firms' boards, female directors reduce the future likelihood of a stock price crash.

Mots clés: Institutional investors; Board composition; Female directors; Financial reporting quality

Domaines: Sciences de l'Homme et Société

Karen M Y Lai, Mehdi Khedmati, Ferdinand A Gul, Matthew P Mount. Making honest men of them: Institutional investors, financial reporting, and the appointment of female directors to all-male boards. Journal of Corporate Finance, 2022, 78, pp.102334. ⟨10.1016/j.jcorpfin.2022.102334⟩. ⟨hal-03912684⟩