Boardroom gender diversity cuts corporate financial risks

Researchers have uncovered strong evidence that female leadership in corporate governance can curb aggressive financial behaviors in emerging markets. Published in the Journal of Risk and Financial Management, the paper titled “Exploring Gender and Corporate Governance in an Emerging Market: Bridging Female Leadership, Earnings Management and Tax Avoidance” investigates how the presence of women in executive and board-level roles moderates the relationship between earnings manipulation and tax avoidance in Vietnamese companies.

The study evaluates 351 non-financial publicly listed firms in Vietnam between 2010 and 2022 using a dynamic panel model approach. Employing the two-step system generalized method of moments (GMM), the authors reveal that not only are earnings management and tax avoidance closely linked, but this relationship weakens when women occupy key governance positions. 

How are earnings management and tax avoidance connected?

The research establishes a statistically significant positive relationship between earnings management and tax avoidance. In contexts where managerial discretion is high and oversight is weak, firms often engage in manipulating earnings to meet short-term performance goals. This manipulation provides cover for more aggressive tax strategies, particularly in jurisdictions where regulatory enforcement is uneven.

The Vietnamese market, marked by rapid financial liberalization and evolving corporate governance standards, provides fertile ground to examine this phenomenon. The study finds that companies engaging in earnings management are more likely to exploit tax loopholes or deploy complex tax planning instruments to reduce effective tax rates. These behaviors contribute to long-term risk exposure, undermine public trust, and reduce state revenue, especially detrimental in developing economies.

The authors argue that the interdependence between these two practices reflects a broader culture of opacity and short-termism that corporate governance reforms must confront. Left unchecked, these strategies distort market signals, harm investors, and place firms at higher regulatory risk.

What role does female leadership play in corporate governance?

The researchers examine how gender diversity influences financial ethics, with a focus on female representation among board members and in executive leadership, measuring its moderating impact on the relationship between earnings management and tax avoidance.

The results show that female leaders are associated with greater financial discipline. Companies with higher proportions of women in governance positions demonstrated a significantly weaker link between earnings management and tax avoidance. This suggests that gender-diverse leadership teams are less likely to tolerate aggressive or ethically questionable financial practices.

The study attributes this effect to several factors. First, women in leadership roles often bring different risk assessments and ethical priorities to the boardroom, which may reduce tolerance for high-risk financial behavior. Second, women are frequently more attuned to long-term strategic planning, stakeholder accountability, and reputational concerns, all of which discourage short-term manipulation tactics. Third, their presence may catalyze better group dynamics, foster debate, and improve oversight quality.

Importantly, the research does not imply that female leadership eliminates unethical financial practices altogether. Rather, it demonstrates a mitigating effect, female-led governance structures are more likely to identify and challenge earnings and tax strategies that prioritize financial engineering over real value creation.

What are the implications for corporate policy in emerging markets?

The study carries significant implications for corporate governance policy, particularly in emerging economies like Vietnam that are working to attract foreign investment, build robust capital markets, and enhance fiscal sustainability. As firms face increasing pressure from international investors and multilateral agencies to improve transparency and ESG performance, gender diversity in leadership is emerging as a key governance benchmark.

The research supports the argument for gender quotas or policy incentives that promote female board participation. While Vietnam currently has no mandatory quotas, the findings suggest that voluntary adoption of diversity policies could lead to tangible improvements in financial integrity. Beyond Vietnam, these results may hold relevance for other ASEAN nations and emerging markets where corporate accountability remains a developmental priority.

From a regulatory standpoint, the study highlights the need for integrated governance reforms. Strengthening audit oversight, enhancing transparency requirements, and aligning executive incentives with long-term value creation are essential to curbing financial manipulation. However, the presence of women in governance can act as a complementary safeguard, especially when paired with legal and institutional backing.

For companies, the findings suggest a strategic rationale for diversifying leadership, not merely as a social or ethical gesture, but as a measurable risk-reduction tool. Firms that prioritize gender-inclusive governance may benefit from enhanced investor confidence, better stakeholder relations, and lower exposure to tax and compliance violations.