Justin G. Davis, PhD


Financial Reporting Quality and the Effects of CFO Gender and Board Gender Diversity with Miguel Àngel García-Cestona, Journal of Financial Reporting and Accounting, https://doi.org/10.1108/JFRA-12-2020-0360

The purpose of this study is to examine the effects of CFO gender, board gender diversity, and the interaction of both factors on financial reporting quality proxied by restatements. Restatements indicate inaccurate financial reporting. We use fixed effects conditional logistic regression models to compare firms with and without restatements matched by size, industry, and year. Our unique matched pair sample consists of 546 listed U.S. firms from the period 2005-2016. Our results provide evidence that restatements are less likely when the CFO is a woman and when a higher proportion of women serve on the board of directors. Considering the interaction effects, we find evidence that women on the board of directors are more effective at reducing restatement likelihood when the CFO is also a woman. And that while female CFOs reduce restatement likelihood generally, they have no statistically significant effect on restatement likelihood when the board of directors is all-male. This study is the first that we know of to consider how financial reporting quality is affected by the interaction effects of CFO gender and board gender diversity. The findings corroborate upper echelons theory and extend the understanding of the effects of managerial gender diversity at a time when firms face growing pressure to increase gender diversity at the highest levels. The unique sample, methodology, and findings provide new insights into the impact of gender on financial reporting quality which has important policy implications.


Geopolitical Risk and Crowdfunding Performance with Naif Alsagr, Douglas Cumming, and Ahmed Sewaid

The most pronounced risk in rewards crowdfunding is product delivery.  Developing markets around the world exhibit pronounced geopolitical risks (GPR) that significantly impact the likelihood of product delivery.  This paper examines 1,672 fundraising attempts from the nineteen developing countries listed in the GPR index. The data indicate that GPR has the most statistically and economically significant impact on crowdfunding success.  Further, the evidence shows that entrepreneurs can mitigate these expected costs of geopolitical risks through signaling and campaign disclosures.

CEO Age, Financial Statement Irregularities, and Earnings Management with Miguel Àngel García-Cestona

According to upper echelons theory, the characteristics of top management influence firm outcomes significantly. Drawing on this theory, we study how the occurrence of financial statement irregularities and earnings management are affected by CEO age. We measure financial statement irregularities by applying Benford’s law to financial statement line items. We also measure accruals-based and real activities earnings management. We find that financial statement irregularities and abnormal decreases in discretionary expenses are more prevalent when CEOs are older. We address endogeneity and use an instrumental variable to demonstrate evidence of a causal link. These findings hold for the modern, post Sarbanes–Oxley Act period. We also find some evidence of a relation between abnormally high discretionary accruals and older CEOs. The effects of CEO age are especially interesting because average CEO age in the United States has been increasing considerably in recent years. Our unique sample, methodology, and findings provide new insights into the relation between CEO age and financial reporting outcomes which have important policy implications.

Institutional ownership, earnings management, and earnings surprises

As the influence held by institutional investors over managerial decision-making grows, so does the importance of understanding the effect of institutional investor ownership (IO) on firm outcomes. We take a comprehensive approach to studying the effect of IO on earnings management proxied with earnings surprises and traditional accruals-based and real activities measures. We test for nonlinear relations and analyze changes resulting from the passage of the Sarbanes–Oxley Act. Our findings support a positive IO-earnings management relation overall, but show that the relation is dynamic and heavily context-dependent with evidence of nonlinearity as well. We also find evidence that IO affects accruals-based earnings management positively and real activities earnings management negatively.

Financial Reporting Quality and Financial Report Readability