This study aims to examine whether the synergy between earnings quality and board gender diversity influences corporate risk-taking.
A data set of 335 industrial Thai listed firms with 3,350 firm-year observations from 2011 to 2020 was analyzed using a fixed-effects model and an instrumental variable with a two-stage least squares regression approach.
Board gender diversity moderates the relationship between earnings quality and corporate risk-taking. When firms have stronger earnings quality, female directors may encourage firms to take more accounting-based risks to earn higher returns. This implies that female directors tend to have a high incentive to balance corporate risk. Importantly, female directors may influence to increase corporate risk-taking when firms use accounting-rather than cash-flow-based metrics to estimate corporate risks because of the accrual basis of accounting principles. The findings are consistent with the agency theory, the resource dependence theory and the approach/inhibition theory of power. However, when firms use cash flow-based risk-taking, board gender diversity may be a potential moderator to increase the magnitude of negative relationship between earnings quality and cash flow volatility. Thus, the measure of corporate risks is crucial.
To the best of the authors’ knowledge, this study is the first to explore whether female directors moderate the relationship between earnings quality and corporate risk-taking, and corporate risk measurements are crucial. It is also the first to investigate this issue in Thailand.
