Management Accounting Section Midyear Meeting

Identity, Trust, and Over-Monitoring: Evidence from Dyadic Gender Differences

• In Event: Top Management Culture

Abstract

We examine how a person’s identity affects decision making in the context of a critical corporate governance dyad: the audit committee chair’s (ACC) monitoring of the chief financial officer (CFO). Based on theories from the economics of identity and the notion of particularized trust, we argue that the ACC’s trust in the CFO is lower when there is an ACC-CFO gender difference, which leads to the ACC over-monitoring the CFO. We find results consistent with our expectations: ACC-CFO gender difference is associated with greater audit committee meetings, both in a levels analysis with firm, year, CFO, and ACC fixed effects and in a changes analysis. This effect is attenuated for firms with a culture of diversity tolerance or where the CFO has greater power relative to the ACC. The effect is accentuated when the CFO is new or when the CFO is failing in his/her fiduciary duty. In ACC-CFO gender difference firms, greater audit committee meetings are not associated with financial reporting reliability. However, for these firms, greater audit committee meetings are associated with worse financial reporting timeliness and lower CFO performance. Overall, our results suggest that identity differences influence monitoring decisions in trust-relevant corporate governance interactions.

Authors

• Aishwarrya Deore, Michigan State University

• Ranjani Krishnan, Michigan State University

• Musaib Ashraf, The University of Arizona