Does board gender diversity reduce earnings management? “Empirical evidence from French gender quota law”

Purpose The purpose of this study is to examine the effect of gender quota on earnings management practices. Specifically, the authors investigate board gender diversity effectiveness before and after full compliance mandatory gender quota. Design/methodology/approach Based on a sample of French listed companies over the period 2010–2019, the authors use panel data regressions. The authors also run Chow test to capture the effects of board gender diversity after the use of quota law in 2017. Findings The results of this study indicate that gender diversity functions as a governance mechanism that improves control and reduces earnings management. However, after the 2017 gender quota law, the relationship becomes positive, revealing potential drawbacks of mandatory quotas. In line with optimal contracting theory, appointing women solely to meet quotas led to over-monitoring, especially in firms with already strong governance. This practice often prioritizes gender over qualifications, resulting in less effective boards. Additional analysis suggests that cultural diversity can help offset the negative effects of quotas by reducing tokenism and enhancing the monitoring role of board. Practical implications Regulators should prioritize incentive-based nudges, such as certifications recognizing gender diversity, rather than rigid quotas. This approach avoids tokenism and promotes diversity aligned with skills. An inclusive organizational culture, supported by targeted public policies, remains crucial to counterbalance the effects of mandates. For investors, integrating these cultural dimensions into their analysis enhances risk assessment, while companies should prioritize appointments that balance gender, expertise and diverse profiles. Together, these strategies – rooted in nudges and culture – strengthen the reliability of information. Originality/value This study extends research on board gender diversity by exploring the differential effect of the different approaches taken in considering the representation of women on earnings management.