Financial reporting quality effects of imposing (gender) quotas on boards of directors

• Published in: Journal of accounting and public policy 2022-03, Vol.41 (2), p.106921, Article 106921
• Main Authors: García Lara, Juan Manuel, Penalva, Jose, Scapin, Mariano
• Format: Article
• Language: English
• Subjects: Boards of directors; Corporate governance; Directors; Financial reporting; Financial reporting quality; Gender; Law; Mandated changes on boards of directors; Monitoring; Public finance; Quotas; Women
• ISSN: 0278-4254; 1873-2070
• DOI: 10.1016/j.jaccpubpol.2021.106921

•We study the passage of a Norwegian law requiring gender diversity on firms’ boards.•We find a short term decrease in accounting quality for the most affected firms.•Changes to other board members characteristics can partially explain our findings.•Mandating large and fast changes to boards negatively affects financial reporting.•Important result as several countries are considering passing similar regulations. We analyze whether the passage of a Norwegian law requiring a minimum of a 40 percent of women on the boards of public firms affected financial reporting quality. Our results are consistent with a decrease in financial reporting quality for the firms that were most affected by the passage of the law, and with the effects being relatively short-lived. We also find evidence that board members characteristics, beyond gender, changed due to this law. These changes can partially explain our findings. Overall, our results show that mandating large changes to board composition over a relatively small period of time negatively affects financial reporting.