Does mutual tenure between female independent members and top managers affect financial reporting quality?

Purpose The purpose of this study is to investigate the effect of mutual tenure between female independent directors (FIDs) and top managers, such as chairpersons and CEOs, on the financial reporting quality (FRQ) of companies, adopting psychological safety and social identity theories. In addition, following socioemotional wealth theory, this paper investigates the moderating role of female directors, particularly family female directors, on this association. Design/methodology/approach The study uses ordinary least squares and addresses endogeneity and selection bias with System GMM and the Heckman model. It also examines the moderating roles of the percentage of female directors and the percentage of female family directors, identifies when mutual tenure begins to harm FRQ and tests alternative FRQ proxies. Findings Increasing mutual tenure between FIDs and top managers negatively impacts FRQ. This finding is supported by the results of the System GMM and Heckman selection procedures. The percentage of female board members, particularly family female directors, moderates this negative effect. While the financial reports are of high quality in the first year of mutual tenure, the coefficient begins to reverse by the third year; and by the fourth year, the negative effect of mutual tenure becomes statistically significant. Alternative FRQ measures are consistent with the main results. Practical implications For practitioners, the results highlight the need to balance board stability with independence by implementing term limits or rotation policies for FIDs, while also underscoring the value of increasing female representation to mitigate these risks. Originality/value This study provides unique empirical evidence on how mutual tenure between FIDs and top managers impacts FRQ, addressing a critical gap in corporate governance literature. The findings challenge the assumption that prolonged collaboration unambiguously improves governance, demonstrating instead that familiarity and trust can undermine FIDs’ monitoring and oversight effectiveness – a timely insight as regulators worldwide debate board diversity and tenure policies.