Getting to the Bottom Line: An Exploration of Gender and Earnings Quality

32 Pages Posted: 18 May 2006

See all articles by Linda M. Parsons

Linda M. Parsons

University of Alabama - Culverhouse School of Accountancy

Gopal V. Krishnan

Bentley University

Date Written: January 2006

Abstract

For stakeholders, such as investors and lenders, to appropriately assess a company's financial performance, the reported accounting earnings must closely reflect the economic reality of the organization's financial activity throughout the reporting period. The degree to which reported earnings capture economic reality is called earnings quality. Managers have an ethical obligation to report high quality earnings to interested stakeholders in a timely matter.

Accounting research has identified conditions within an organization, such as management compensation contracts and pending litigation, that can impact earnings quality. We extend this line of research by exploring whether another characteristic of an organization, gender diversity in senior management, influences the quality of reported earnings. Companies with more women in senior management are found to be more profitable and have higher stock returns after initial public offerings than those with fewer women in the management ranks. Our findings suggest that the improved bottom line for companies with more women senior executives is not produced through the management of earnings or lower quality earnings. Instead, earnings quality is positively associated with gender diversity in senior management.

Keywords: Earnings quality, Gender, Diversity, Ethics, Conservatism

JEL Classification: M41, M43, G24, G34, J16

Suggested Citation

Parsons, Linda M. and Krishnan, Gopal, Getting to the Bottom Line: An Exploration of Gender and Earnings Quality (January 2006). Available at SSRN: https://ssrn.com/abstract=899363 or http://dx.doi.org/10.2139/ssrn.899363

Linda M. Parsons (Contact Author)

University of Alabama - Culverhouse School of Accountancy ( email )

101 Paul W. Bryant Dr.
Box 870382
Tuscaloosa, AL 35487
United States

Gopal Krishnan

Bentley University ( email )

175 Forest Street
Waltham, MA 02452
United States
781-891-2477 (Phone)

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