Gender Diversity and Securities Fraud

62 Pages Posted: 2 Oct 2012 Last revised: 21 Nov 2014

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy

Oliver M. Rui

China Europe International Business School (CEIBS)

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 2012

Abstract

We formulate theory and set forth a first-ever empirical analysis of the impact of board of director gender diversity on the broad spectrum of securities fraud, generating three main insights. First, the examined data show strong evidence consistent with the view that the importance of women on boards in mitigating securities fraud lies in the mechanism of diversity itself, such that the optimal percentage of women on boards is 50% with respect to minimizing securities fraud. We find less direct support for the alternative proposition that women are more ethically sensitive and less likely to risk committing fraud, such that the optimal percentage of women on boards would be 100% with respect to mitigating securities fraud. Second, we show that the market response to fraud from a more gender-diverse board is significantly less pronounced. Third, we show that women are more effective in mitigating both the presence and severity of fraud in male-dominated industries, which again supports the notion of diversity. All our findings are robust to controls for endogeneity and propensity score matching, among other robustness checks.

Keywords: corporate governance, ethical sensitivity, fraud, gender diversity, risk aversion

JEL Classification: G30, J16, K22

Suggested Citation

Cumming, Douglas J. and Leung, Tak Yan and Rui, Oliver M., Gender Diversity and Securities Fraud (August 1, 2012). Available at SSRN: https://ssrn.com/abstract=2154934 or http://dx.doi.org/10.2139/ssrn.2154934

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Tak Yan Leung

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

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