Is earnings management related to board independence and gender diversity? Sector-wise evidence from India

The present paper investigates the relationship between earnings management and board characteristics of independence and gender diversity in the Indian corporate sector in accordance with the sectorial classification. The main corporate ownership model in Indian firms is found to be the promoter-dominated shareholders model which further illustrates the importance of the board in restraining earnings management. In Indian companies, the main issue is to control the dominant shareholder and safeguard the minority shareholders. The study uses a panel data structure to examine the importance of sector segregation and gender diversity in the context of earnings management practices among large public companies in India. The study shows that the magnitude of earnings management highly varies with the relative nature of the sector. Furthermore, the results suggest that woman directors are more efficient at monitoring earnings management in respective firms and mere having independent directors does not ensure sound corporate governance. This ensures that sectorial classification and gender diversity are important factors in the corporate practices of earnings management. The results are of considerable importance to policymakers in evaluating the sector characteristics about earnings management, and improving corporate governance policy-making by increasing the women directors’ participation and implementing the related board variables in the relative sector. This is the first study that explores the association between gender diversity of the board and earnings management practices of large listed companies in an emerging economy like India. It also evaluates the significance of sectorial classification in this context for added significance of the study.