Ex-post analyses of corporate scandals often postulate a what-if scenario: Would things have been different (better) had women held the reins of those firms? Variants of this question appear in the media, political speeches, and academic research. Our recent research addresses this question by examining whether the likelihood of irregularities in corporate financial statements is lower if the firm has a female Chief Financial Officer (CFO).
Financial statement information is critical for efficient capital allocation and investment. Misreported financial statements have harmful consequences: companies go bankrupt erasing the jobs and savings of employees; management and directors are fired, tried, and sometimes incarcerated; and confidence in business is eroded. Although financial misreporting is a popular area of multidisciplinary research, empirical inquiry is based generally on firms that are ‘caught’ engaging in fraudulent behaviors. Researchers observe detected fraud, not all fraudulent activity, generally referred to as the ‘partial observability’ problem.
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