Are all female directors equal? Incentives and effectiveness of female independent directors

We examine how differences in the career incentives of female directors impact their monitoring effectiveness in the context of financial reporting. We find that female independent directors who are sitting senior executives in other firms (executive FIDs) improve financial reporting quality while other female independent directors (non-executive FIDs) do not. Exogenous departure of executive FIDs leads to deterioration of financial reporting quality. Empirical approaches addressing reverse causality and selection problems support our primary findings. We also find that executive FIDs who are younger or not CEOs are more effective in improving financial reporting quality. These findings support the notion that varying career incentives of female directors contribute to the differences in their board monitoring performance. Finally, executive FIDs’ effective monitoring of financial reporting is more prominent in firms with higher monitoring costs and when they serve on more prestigious boards.