The Effect of Board Diversity on Earnings Quality: An Empirical Study of Listed Firms in Vietnam

Trang Cam Hoang, Indra Abeysekera, Shiguang Ma

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Abstract

Previous studies have established that firms’ effectiveness can differ based on the differences among directors within a board, and between boards. However, studies have yet to establish the effectiveness of the diverse attributes of the board on firms’ quality of earnings in an emerging market setting such as Vietnam. This study investigates the effect of board diversity on earnings quality in a sample of Vietnamese listed firms. The two dimensions of board diversity measures in this study cover a wide range of structural and demographic attributes of board of directors, using a diversity-of-boards index (dissimilarities among firm boards, i.e., board structure) and a diversity-in-boards index (dissimilarities among directors within a board, i.e., demographic attributes of board members). Earnings quality is an aggregate measure compiled from four accounting-based measures of earnings quality: accruals quality, earnings persistence, earnings predictability and earnings smoothness. We find a significant, positive linear relationship between diversity of boards and earnings quality, while the relationship between diversity in boards and earnings quality is non-linear, with a U-shaped curve.

Original languageEnglish
Pages (from-to)146-163
Number of pages18
JournalAustralian Accounting Review
Volume27
Issue number2
Early online date27 Dec 2016
DOIs
Publication statusPublished - Jun 2017
Externally publishedYes

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