Earning management and audit committee effectiveness in GCC: the mediating effect of board gender diversity

Purpose This paper aims to explore how female directors on GCC boards mediate the association between earnings management and audit committee effectiveness, leveraging agency and upper echelons theories. Design/methodology/approach This paper uses 567 nonfinancial GCC-listed firms from 2020 to 2023, using Structural Equation Modeling (SEM) to assess how board gender diversity mediates the link between audit committee features and earnings quality. Findings The results demonstrate a negative correlation between accrual earnings management and audit committee effectiveness. Moreover, upon introducing board gender diversity as a mediator variable, the findings suggest that the presence of female directors within GCC boards completely mediates this inferred relationship. Research limitations/implications This paper’s limitations point to promising avenues for future research. First, it illuminates the link between earnings management, audit committee effectiveness and board gender diversity in GCC nonfinancial firms. Future studies could explore how gender diversity mediates corporate governance and financial reporting across different contexts. Second, investigating similar trends in financial firms or other regions could provide valuable comparative insights. Third, using advanced econometric techniques, such as instrumental variable approaches or propensity score matching, could help address unobserved variables or bias, thereby enhancing result validity. Finally, considering the influence of cultural and institutional factors on gender diversity, governance mechanisms and earnings management could offer deeper insights into corporate governance dynamics. Practical implications This paper highlights implications for investors, policymakers and regulators. Investors should see female directors on GCC boards as an indicator of effective governance, potentially indicating lower earnings management and better transparency. Adjusting investments to favor diverse boards might reduce agency costs and improve oversight. GCC policymakers could boost governance by promoting gender diversity on boards, which may enhance financial oversight and reduce risks. Regulators could emphasize gender diversity in governance codes to reduce conflicts and improve financial integrity. Originality/value This paper offers original insights regarding the interplay of earnings management, audit committee and board gender diversity within GCC nonfinancial firms, highlighting the mediating role of gender diversity in corporate governance mechanisms.