Companies are likely to be more transparent about their alternative revenues if there are at least three women on their boards, according to new research published in the European Accounting Review show.
dr. Dinithi Ranasinghe, of the Department of Accountancy and Finance, led a study showing that companies with gender-diverse boards of directors produce high-quality non-GAAP disclosures.
Non-GAAP earnings, also known as alternative performance measures, are pieces of financial information that companies disclose outside of their regulated financial statements.
“Since these are subject to management’s discretion, it is important for investors to understand whether they reflect the company’s underlying economic performance,” said Dr. ranasinghe.
Using a sample of 200 companies on the Australian Stock Exchange from 2013 to 2018, researchers measured the quality of their non-GAAP earnings by how consistently companies calculate them over time and how their exclusions are measured. compared to the exclusion of other companies.
The results showed that when companies have gender-diverse boards, their non-GAAP information is more consistent and comparable. Interestingly, the results also apply to the companies when there are three or more female directors on board.
dr. Ranasinghe says this is because women are more likely to be risk averse and ethical.
“Furthermore, there is research that suggests that when there are more female directors on a board, male members are likely to be more diligent,” she says.
“We expect governance oversight of financial reporting to be more robust.”
As a result, managers are less likely to be opportunistic and more likely to seek to improve the quality of their non-GAAP information.
“This will lead them to increase the consistency and comparability of their disclosures, which are qualitative and critical features of financial disclosures.”
dr. Ranasinghe says this is important knowledge for both investors and regulators.
“Our insights on non-GAAP reporting confirm the important role of board monitoring.”
It also emphasizes to regulators that gender diversity is one way to improve the quality of disclosure.
“These findings apply to New Zealand capital markets as the New Zealand financial reporting regime only provides guidance on non-GAAP disclosures and has less prescriptive regulatory oversight.
“Due to the prevailing nimble approach to regulation, it is important that publicly traded companies in New Zealand have gender-diverse boards overseeing the consistency and comparability of non-GAAP disclosures.”
How disclosing ad spend can reduce investor and analyst uncertainty and potentially boost company valuations
Dinithi Ranasinghe et al, Do women mind the non-GAAP? Board gender diversity and non-GAAP disclosure quality, European Accounting Review (2022). DOI: 10.1080/09638180.2022.2116065
Quote: Alternative earnings information is of high quality if women are on board (2022, October 3), retrieved October 3, 2022 from https://phys.org/news/2022-10-alternative-disclosures-high-quality- women board. html
This document is copyrighted. Other than fair dealing for personal study or research, nothing may be reproduced without written permission. The content is provided for informational purposes only.