Does board diversity improve accounting conservatism? The moderating effects of board roles: evidence from a developed economy

This study aims to investigate the impact of Board diversity on accounting conservatism. We examine the business case for surface, deep, and aggregate levels of diversity. The study also investigates the Board of Directors' moderating role in the relationship between Board diversity and accounting conservatism. This paper employs a fixed-effect regression analysis of a sample from six developed countries from 2016 to 2020: Australia, Singapore, Hong Kong, Canada, the United Kingdom, and the United States. Based on the model of Basu (1997), the conservatism ratio (C-Raio) and conservatism score (C-Score) are applied as proxies for accounting conservatism in this study. The evidence reveals that Board diversity is positively related to conservative accounting. The research also confirms that Board monitoring and advisory roles can improve accounting conservatism. However, the positive link between Board diversity and conservatism is less pronounced when Board roles are stronger. The findings suggest that "the substitutive function," which balances Board diversity and Board roles, has a more significant impact on conservative financial reporting. The authors make a significant contribution to the accounting and corporate governance literature by demonstrating the relationship between Board diversity, Board roles and higher-quality earnings. Additionally, this paper contributes to the literature on the Board of Directors and accounting quality by highlighting the Board's supplementary functions in this area.