Do strength of women in the upper echelon influence earning quality? The application of critical mass theory.

Abstract

The global financial crises and scandals have necessitated the need for a robust corporate governance mechanism to ascertain an earnings quality of the financial report. The board of directors being the apex body of the corporate governance is saddled with the responsibility for monitoring, supervising and controlling the activity of the management. To reduce the information asymmetry and provide an accurate projection of cash flow, the financial and legislative regulatory authorities in developed economies recommends a well constituted gender-diverse board in which the marginalised gender is at least 40 per cent of the board. Based on the critical mass theory, the women can only influence the board decision when the threshold is attained. However, following the Nigerian institutional framework in respect of critical mass of women in board, there is still a dearth of literature on the effect of the strength of women in board decisions, with cognisance to critical mass theory.The study examines the effect of the critical mass of female in the board and audit committee on earnings quality. The study employs a longitudinal research design and census study by collecting secondary data on Deposit Money Banks from 2011-2020. The ordinary least square is used in estimating the data collected. The result showed that women on the board and audit committee have a positive and significant effect on earnings quality when the critical mass threshold is reached. The study concludes that females play a critical part in the corporate governance decision-making process when the critical mass threshold is reached.