Will Female Directors Enhance Earnings Quality and Annual Report Readability?

Abstract :

This study was motivated by the attention of regulators and academicians regarding the level of companies’ annual report readability. The purpose of this study is to examine the influence of female directors and earnings management on the readability of annual reports while also examining the mediating role of earnings management. In particular, the readability of the company’s annual report will be seen from the management perspective using the FOG Index on the annual reports of companies listed on the Indonesia Stock Exchange during 2015-2018 (excluding the financial sector). This study concludes that the presence of female directors reduces earnings management practices undertaken by the companies, this confirms with gender socialization theory that there are differences in the behavior and attitudes of both men and women at workspace as women tend to be more careful, risk-averse, and being more ethical, while the relationship between earnings management and female directors to the readability of the annual report is not proven. This implies that female directors in Indonesia have not been able to give a direct influence on the readability of the annual report, one possibility might be due to the composition of female directors which is relatively small, and the sample used in this study is limited to the presence of female directors by excluding their expertise, position, and education background. Besides, the readability score of the management discussion and analysis does not show much variations but tends to have less variation from year to year.