Abstract-

Earning reporting practice of a firm is evaluated by the shareholders to control the fraudulent
schemes (Gill, Biger et al. 2013). The week control of shareholders over the management results
the earnings management activities. Earning management is the most common way to misreport
the real financial information (Umer, Abbas et al. 2020). Investors are relied on the information
of financial statement which is the real activity of any financial disclosure (Harris, Karl et al.
2019). Earning management is generally stimulated by affecting the real activity decisions of
financial statement. When a firm engages in earnings management, the information asymmetry
between the firm and its shareholders’ increases and can lead to problems (Chu and Song 2010).
This can lead to unethical conducts, lessen the earning quality activities, become more
irresponsive to the market; and finally, weaken its financial statement (Fan, Jiang et al. 2019).
For better firm’s value, composition of the board varies from company to company and have
significant impact on earnings quality management (Hashim and Devi 2008). The more gender
diverse boards are generally more efficient because they have better discussions with effective
communication and higher quality of earnings than less diverse boards (Upadhyay and Zeng
2014). To constrain such opportunistic behavior, country-level and industry level initiatives have
been implemented through enhanced regulations. More gender diversity on different industries
lead to less earning management and the different regulations of different countries bring more
quality in earning. More gender diverse board improve financial performance, lessen the earning
management activities, become more responsive to the market; and finally, strengthen its
financial statement. Women are more ethical in a business context and they are less likely to
engage in unethical issues (Chen, Tuliao et al. 2016). Umer, Abbas et al. (2020)finds that women
holding a post on board curtails the earnings manipulative practices through proper monitoring
and reduces the earnings manipulation. Kyaw, Olugbode et al. (2015)find in their study that the
inclusion of women on the board is positively related to the financial performance and quality
control management of firms, measured by the total debt, the return on asset and many more.
These quality control management uphold the firm’s value by decreasing the earning
manipulation.

Keyword- Earning quality management, Earning management, Women on board, board

diversity, Gender Diversity, Size.

Literature review
2.1. Quality Earnings Management & Gender Diversity
Companies manage their impression through financial statements(Davidson and MacKinnon
2004).Investors are supposed to rely on the information of financial statements provided by the
company(Mashkour 2020). Management of a company is endowed with the methods of earnings
manipulation because firm performance relies on net income (Gill, Biger et al. 2013). Among the
many alternatives, managers easily manipulate net income through current assets(Moradi, Salehi
et al. 2012). Earnings management is a method of manipulating financial statements to improve
firm’s performance as well as the financial position to investors. To uphold this financial
position, companies use earning management as a motivation to display the good news to
corporate boards by showing a consistent profit(Gill, Biger et al. 2013). This process of earning
management causes an adverse negative impact on market price in the near future event of
disclosure (Cohen, Marcus et al. 2021). To mitigate earnings management at board level, an
ample study suggests different precautious measures including gender diversity, board diversity,
and others.
Gender diversity plays a vital role which diminishes the manipulation of earning and increase the
firm’s value (Reguera-Alvarado, de Fuentes et al. 2017, Agyemang-Mintah and Schadewitz
2018). Prior research shows that there is a difference between men and women in maintaining
the firm’s decision to sustain this value. Gender diversity focuses on the percentage and number
of women. In general, research finds that women are more risk averse than men in their financial
decisions and they significantly increase the firm’s value(Olsen and Cox 2001). Empirical
evidence also shows that women have more ethical conducts than men in their perception of
ethical business dilemmas which reduces the earning manipulation of firm(Elias 2004). Previous
research highlights the relevance of women’s role in reducing agency conflicts (Hewa Wellalage
2011).These all theories leads to more gender diversity on firm’s performance in many countries.
The previous literature also supported the notion that gender diversity engage in less debt and
least likely engage in mergers and acquisitions(Harris, Karl et al. 2019). Because gender
diversity on the board reduces managerial opportunistic behavior along with the information
asymmetry, it also reduces the creditors’ perceptions towards the probability of loan default and
the cost of debt(Usman - Taunsvi, Umar Farooq et al. 2018). Gender diversity in governance
structure is more beneficial for firms that are operating in regulated markets which are less
competitive. In our research, there are more than 50 industries of European Union countries
which have their different regulations and policies. These regulatory environments of different
industries impact on the earning quality of total debt and leads to the earning manipulation
activities. But gender diversity of different industries restrains this manipulation of earning and
provide significant relation in earning management.
Women take control-enhancing mechanisms by using earning quality management. Women on
board control accruals items and tries to show a stable and fixed image of corporation because
reported earning fluctuations of company in the continuous periods has negative impact on the
stock price and will decrease the investors trust to the perspective of the company. Earnings
management can be considered as an unethical and risky behavior(Said, Omar et al. 2014).
Women on board increase the earning quality by proper monitoring and auditing and decrease
earning management. European Union companies’ propensity to practice earnings minimization
may depend on gender diversity because gender diverse board has the potential to encourage or
discourage this risky practice(Walters and Ramiah 2016). In our research, different countries of
European Union have shown this inclination towards the gender diversity which has an impact
on earning management and restrain the manipulation activities of earnings.
H1- The more the gender diverse the board is and the more quality control management, the less
the earning manipulation.

Variables-
There has been a renewed appreciation for understanding and documenting the procedure of
firms to manage earnings through real activities manipulation (Roychowdhury 2006). The
variables used in this analysis are-
1. Earning Management
2. Gender Diversity
3. Women on board
4. Leverage
5. Board Size
6. Total debt
7. Winsorized size
8. Return on assets
9. Country
10. Industry
11. Voice and Accountability
12. Political Stability

Methodology-
Our analysis is based on panel data estimation, using the Stata software. We use the Stata 16
version. There are several different linear models for panel data. The individual fixed effects may
be either assumed to be correlated with fixed effects model or be incorporated into the error term
which is random effects model. In this paper, there are more than 50 countries and industries of
European union. We got this data from world bank.
The first step when working with panel data is to test whether the data series can be run through
a panel data model or through a pooled OLS model. OLS model is the simple probability model
which is basically the null hypothesis. And the other hypothesis is FE and RE models. In our
paper, we practically test the presence of the random effect.
Our model is basically estimated by the generalized least square method. It removes the
heterogeneity problem. After performing the Hausman test, the panel required a random effects
approach. As a preliminary estimation we rejected the absence of firm specific effect which
means that the ordinary least squared (OLS) estimations are inconsistent, and consequently, FE
and RE estimations are more suitable. For the random effects model, the STATA command xtgls
fits panel-data linear models by using feasible generalized least squares.