Do board gender diversity and remuneration impact earnings quality? Evidence from Spanish firms

Abstract

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This study examines the impact of gender diversity and board remuneration on earnings quality in Spanish-listed firms. The sample consists of 105 nonfinancial Spanish firms from 2013 to 2018, resulting in an unbalanced panel of 491 firm-year observations. The study employs a Tobit semiparametric estimator with firm- and industry-level fixed effects and utilizes novel measures of earnings quality developed by StarMine. The findings reveal a positive association between increased gender diversity on boards of directors and earnings quality. This suggests that having a balanced representation of genders on the board is linked to more transparent financial reporting and informative earnings. Additionally, the study uncovers a nonmonotonic, concave relationship between board remuneration and earnings quality. Beyond a certain threshold, excessive board compensation leads to greater opportunistic manipulation of financial reporting, resulting in a decline in earnings quality. It is important to note that this study focuses exclusively on nonfinancial Spanish listed firms and does not explore the influence of other board characteristics on earnings quality or their informativeness. The study's originality lies in its introduction of StarMine's measures of earnings quality, which have not been previously utilized in empirical literature. Furthermore, the study applies measures of board gender diversity to a suitable Tobit semiparametric estimator, enhancing the precision of the results. Unlike much of the existing literature that primarily focuses on Anglo-Saxon countries, this study sheds light on board gender diversity and board remuneration in the relatively unexplored context of Spain. The use of a hand-collected dataset comprising financial reports allows for the examination of previously untested board features and reveals a nonlinear relationship between remuneration and earnings quality that has not been extensively discussed before.