The purpose of this paper is to examine whether companies with female executives and directors are less likely to be involved in financial reporting fraud litigation.
The authors build a data set comprised of companies from the Stanford Securities Class Action Clearinghouse database that were involved in fraud litigation along with a control set of companies listed on the Compustat database for the time period 2007-2013. The authors use a logistic regression model to determine the likelihood of fraud when there is at least one woman in an executive position or on the board of directors.
The authors find that the presence of at least one female leader decreases the likelihood that the company will be involved in litigation for financial reporting fraud. The results are robust after controlling for sample selection bias by using a propensity score matched sample.
The findings add to the literature which indicates that women tend to be more risk averse and are more committed to ethics policies. The study also supports previous research that indicates large firms with inflated market value are more likely to be subject to fraud litigation.
The study combines the literature on the characteristics of women in leadership positions with the study of fraud litigation. The authors find evidence that the presence of either female executives or female directors lowers financial reporting fraud risk.
