Female Director, CEO Compensation, and Earnings Smoothing

This paper is the first one in the literature to examine the effect of female directors on earnings smoothing and the potential channels through which such an effect may occur. When the interaction of female directors and CEO incentive compensation is not included, there is no significant overall effect of female directors on earnings smoothing. However, when the interaction term is added, the presence of female directors shows a strengthening effect in significantly increasing the association between incentive compensation and earnings smoothing. Further, the presence of female directors itself appears to play a moderating role in reducing the incidence of earnings smoothing, which conflicts with the effect of female directors through incentive compensation. The conflicting effects exist among both female directors in general and independent female directors. The complex effects of female directors have direct implications for corporate governance policies.