Role of Board Gender Diversity in Facilitating or Mitigating Fraud: A Research Review

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Role of Board Gender Diversity in Facilitating or Mitigating Fraud: A Research Review

Aristanti Widyaningsih, Meta Arief, Abdurrauf Umar

Universitas Pendidikan Indonesia

IJRISS Call for paper


Received: 16 June 2023; Accepted: 27 July 2023; Published: 28 August 2023

Abstract: This study reviewed previous research articles (28 studies) in the last 10 years on the role of board gender diversity on the perpetuation or mitigation of fraud in corporations. The popular grand theory, the Agency Theory of DeAngelo was used as the framework for the study in conjunction with the framework developed by (Jain and Jamali, 2016) on corporate governance. The main finding of the study was that out of the 4 levels he proposed, most of the reviewed studies identified with only 3 levels, namely group; individual and firm excluding the institutional level. The other finding of this study was that gender diversity or presence of women on board facilitated fraud deterrence at all levels, gender diversity was also observed to influence cybersecurity disclosure even though it has no bearing on the strength of the internal control. Several factors capable of influencing these relationships were recommended by the reviewed articles, part of which are political connections; board meeting frequency; establishment of specific law enforcement agencies and laws; a shift in board group dynamics; a mix of directors with industrial and accounting/finance experience, and independent directors among others. The findings suggest that promoting gender diversity on boards is crucial for improving management choices and audit quality. Female directors’ presence can reduce fraud occurrence and mitigate it, and as fraud continues to grow, new solutions are needed to ensure financial reporting quality. Reconsidering stereotypes and addressing the importance of female directors’ presence on boards is essential.

I. Introduction

The occurrence of old and very recent financial scandals in developed regions, including Patisserie Valerie (Grant Thornton), Carillion (KPMG), Conviviality (KPMG), Rolls-Royce (KPMG), BT (PriceWaterhouseCoopers), Mitie Group (Deloitte), BHS (PWC), Ted Baker (KPMG), and Quindell (KPMG), has caused high profile financial debacles and the indictment of the Big Four firms namely KPMG, PriceWaterhouseCoopers, Deloitte, and EY. Accurate financial reporting is essential to the maintenance of shareholder trust. The scandals which have been highlighted above heralded the total overhaul of the financial reporting process in the United States of America. Consequently, several pieces of legislations were enacted, the most notable one among them being the Sebernes Oxley Act of 2002 (SOX). In response to the Enron incident, the SOX significantly altered corporate governance (DeFond and Zhang 2014). The quality of corporate governance and its implications on financial misconducts such as restatements, enforcement actions, and malfeasance are primarily impacted by the increased regulations on audit committee provisions, internal control audits, Public Company Accounting Oversight Board (PCAOB) inspections, and the prohibition of non-audit services. Before then, the financial world became confused as it was believed that auditors’ work cannot be relied upon anymore. But sequel to the implementation of several legislations, in addition to numerous studies carried out on the global phenomenon. Despite the improvement observed in quality of financial reporting, scandals continue to occur.