Paper: “Gender Diversity and Securities Fraud”

Abstract: We formulate theory and set forth a first-ever empirical analysis of the impact of board of director gender diversity on the broad spectrum of securities fraud, generating three main insights. First, the examined data show strong evidence consistent with the view that the importance of women on boards in mitigating securities fraud lies in the mechanism of diversity itself, such that the optimalpercentage of women on boards is 50% with respect to minimizing securities fraud. We find less direct support for the alternative proposition that women are more ethically sensitive and less likely to risk committing fraud, such that the optimal percentage of women on boards would be 100% with respect to mitigating securities fraud. Second, we show that the market response to fraud from a more gender-diverse board is significantly less pronounced. Third, we show that women are more effective in mitigating both the presence and severity of fraud in male-dominated industries, which again supports the notion of diversity. All our findings are robust to controls for endogeneity and propensity score matching, among other robustness checks.

Douglas Cumming*
York University Schulich School of Business
T. Y. Leung
Open University of Hong Kong
Oliver Rui
China Europe International Business School

Full paper

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