Women Inside Directors and CEO Impression Management: An Upper Echelons Theory Perspective

ABSTRACT Does retaining women inside directors reduce CEO impression management and enhance the readability of corporate financial disclosures? A global effort is underway to increase the number of women on the board of directors at major corporations. Still, a lone CEO on the board can obscure the clarity of a company's financial statements when female board members only serve as outside directors. We assert that empowering women inside directors to curb CEO impression management is essential for corporate governance. Extending the Upper Echelons Theory (UET), we predict that a company's board with at least one female inside director can weaken a male CEO's capability of making the annual 10‐K report challenging to understand and manipulate the narrative in his favour. We test our predictions with panel data analysis of 8872 firm‐year observations from a sample of 1338 S&P 1500 companies between 2007 and 2019. Theoretically, we contribute a UET perspective to the study of the impact of board gender diversity on CEO impression management. Practically, we recommend adding at least one woman from the top management team (TMT) to the board to enhance the readability of the 10‐K report.