Board gender diversity and value relevance of abnormal accruals: the case of listed firms in Sub-Saharan Africa

Abstract

This study examined the effect of board gender diversity on the value relevance of abnormal accruals in listed firms in sub-Saharan Africa. Abnormal accruals signal accounting information relevant to firm valuation therefore, they are well-priced. Alternatively, abnormal accruals are opportunistic and misrepresent the firm's value due to mispricing. Female board directors increase firm value and reduce earnings management. However, studies on their impact on value relevance of abnormal accruals, especially in sub-Saharan Africa do not exist. The researcher analysed panel data from listed firms in South Africa, Nigeria and East Africa from 2016 to 2020. Data were collected from annual reports and financial market databases. Board gender diversity consisted of the proportion of executive, non-executive and total female directors. The Ohlson price model (1995) served as the base to measure value relevance. The study regressed the share price against abnormal accruals reported by female board directors obtaining robust Random-effects GLS regression model outputs. The findings showed that abnormal accruals are value-relevant especially when reported by non-executive female directors, and thus are priced by the markets. Thus, rational investors change their negative perception of manipulation in abnormal accruals; supporting the notion that female board directors specifically the non-executive directors exercise their independence through accounting conservatism, improved board governance and monitoring. This reduces information asymmetry that in turn curbs earnings manipulation in firms, leading to high integrity of financial reports and proper market valuation of abnormal accruals. In addition, the study showed that female directors qualified in accounting and finance were positively valued in the market and their presence increased the value relevance of abnormal accruals. This proved that female appointment not only focuses on fulfilling the quota laws but also on quality appointments to eliminate underperformance due to tokenism.