The Moderating Role of Gender Diversity in the Relationship Between ESG Performance, CEO Characteristics, Ownership Structure, and Earnings Management

Abstract

The aim of this research is to analyze the influence of ESG Performance, CEO Characteristics, and Ownership Structure on Earnings Management (EM) of manufacturing companies listed on the Indonesia Stock Exchange (IDX) for the years 2020-2023. Moreover, this study examines the moderating role of Gender Diversity between the ESG Performance, CEO Characteristics, Ownership Structure and Earning Management. Ownership Structure is based on the percentage of institutional ownership, managerial ownership, and foreign ownership, while the CEO Characteristics are age, tenure and education of the CEO. The data obtained is secondary data as a result of 86 observations of 23 manufacturing companies using purposive sampling, then the data was analyzed using the Ordinary Least Squares (OLS) method. The results show that the age and education of the CEO negatively affects earnings management, while there is a positive relationship between institutional ownership and opportunistic reporting. Most importantly, it shows that Gender Diversity is an important moderating mechanism. In particular, women in managerial positions exacerbate the adverse effect of CEO age and education on earnings management and importantly reduce the opportunistic effect of institutional ownership. The findings support the view that gender-diversified boards are more likely to provide a more ethical environment and increase oversight capacity, and act as a behavioral device to mitigate opportunistic financial reporting. This study presents empirical evidence that gender diversity in governance is one of the mechanisms that can be used to curb agency problems and safeguard financial statement integrity.