CEO demographics, Board gender diversity and likelihood Of financial statement fraud among firms listed in east Africa Communities Securities /Stock Exchanges

Abstract

Fraudulent activities among the listed companies across the world have led to massive losses amounting to billions of Shillings. The East African regions have not been an exception as listed companies have been seen to engage in fraudulent activities. Extant literature indicates that the effect of CEO demographics and the likelihood of financial statements fraud have been very controversial. Guided by the Agency theory, Fraud Pentagon theory and Resource-Dependency theory, this study sought to examine whether Board Gender Diversity moderates the relationship between CEO demographics and the likelihood of financial statements fraud among firms listed in the East African Securities/ Stock Exchanges. The general objective of the study was to investigate moderating role of Board Gender Diversity on the relationship between CEO demographics and the likelihood of financial statements fraud in East Africa. Specifically, the study examined the relationship between CEO Age, Gender, Education and Tenure on likelihood of financial statement fraud. The study adopted a longitudinal and explanatory research design since it sought to establish causal relationships between the research variables using panel data analysis. The target population comprised of all the 122 firms listed in East Africa. The inclusion/ exclusion criteria were based on whether the firms traded consistently during the research period among others. A survey of the remaining 62 firms that traded consistently during the period 2012-2023 was done. Data was extracted from the individual firm’s audited annual reports with the aid of a data collection schedule for the period between 2012 and 2023. The data was analyzed through descriptive and inferential statistics. Hypotheses were tested using the probit regression model. The findings revealed that CEO: age (β= - 2.022, ρ<0.05), gender (β= 0.768, ρ<0.05), financial expertise (β= -0.368, ρ<0.05) and tenure (β= 0.313, ρ<0.05), had a statistically significant effect on financial statement fraud with an overall pseudo R² of 30.06%. In addition, the results revealed that board gender diversity moderated the relationship between CEO: age (β= 6.796, ρ<0.05), gender (β= - 5.047, ρ<0.05), financial expertise (β= -3.182, ρ<0.05) and tenure (β= - 1.500, ρ<0.05) and financial statement fraud, with a change in R² of 4.94%. Based on the findings, the study concluded that CEO demographics have significant effects on financial statement fraud. Further, the study established that board gender moderates the effect of CEO demographics on the likelihood of financial statements fraud among firms listed in East Africa. The study recommends that policy makers should consider not only the gender of CEOs, but also their competences in exercising oversight in financial reporting. Also, there is need to regulate CEO’s age in an effort to combat corporate fraud. Therefore, the findings of this study may inform corporate governance setters in developing codes that mitigates the likelihood of firms engaging in fraudulent financial statement fraud. This study was limited to listed firms in EAC; future studies may consider other regions and other corporate governance variables.