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The effect of gender composition in joint audits on earnings management

Author

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  • Fan-Hua Kung
  • Yu-Shan Chang
  • Minting Zhou

Abstract

Purpose - This paper aims to examine the association between gender composition of joint auditor pairs and the quality of reported financial information. More specifically, the authors attempt to assess whether and how these gender compositions affect the client firms’ earnings management behavior. Design/methodology/approach - The authors utilized the unique institutional setting of Taiwan, where joint auditors are required by law. They studied the effect of gender in joint auditor pairs on accrual earnings management and real earnings management to achieve financial reporting objectives. Findings - Empirical results indicate that engaging a woman as the lead auditor can constrain accrual earnings management, regardless of whether the joint auditor is male or female. The authors also found that all-male signing auditor pairs with industry expertise can significantly reduce accrual earnings management. The authors also documented that all-female signing auditor pairs and auditor industry expertise could drive clients to engage in real earnings management activities as an alternative to accrual earnings management. Originality/value - The empirical results demonstrate that gender indeed plays a role in the quality of client’s reported financial information. Female auditors in a lead position and male auditors with industry expertise tend to be more successful in delivering better-quality audits.

Suggested Citation

  • Fan-Hua Kung & Yu-Shan Chang & Minting Zhou, 2019. "The effect of gender composition in joint audits on earnings management," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 34(5), pages 549-574, May.
  • Handle: RePEc:eme:majpps:maj-05-2018-1885
    DOI: 10.1108/MAJ-05-2018-1885
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    Citations

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    Cited by:

    1. Ionuț Viorel Herghiligiu & Ioan-Bogdan Robu & Marinela Istrate & Maria Grosu & Camelia Cătălina Mihalciuc & Adrian Vilcu, 2023. "Sustainable Corporate Performance Based on Audit Report Influence: An Empirical Approach through Financial Transparency and Gender Equality Dimensions," Sustainability, MDPI, vol. 15(18), pages 1-28, September.
    2. Patrick Velte, 2023. "The impact of external auditors on firms’ financial restatements: a review of archival studies and implications for future research," Management Review Quarterly, Springer, vol. 73(3), pages 959-985, September.
    3. Mohamed M. El-Dyasty & Ahmed A. Elamer, 2022. "Multiple audit mechanism, audit quality and cost of debt: empirical evidence from a developing country," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 19(3), pages 264-281, September.
    4. Ahsan Habib & Dinithi Ranasinghe & Julia Yonghua Wu & Pallab Kumar Biswas & Fawad Ahmad, 2022. "Real earnings management: A review of the international literature," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(4), pages 4279-4344, December.
    5. Xie, Xinmei & Chang, Yu-Shan & Shiue, Min-Jeng, 2022. "Corporate life cycle, family firms, and earnings management: Evidence from Taiwan," Advances in accounting, Elsevier, vol. 56(C).

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