Managerial Opportunism in Fair Value Accounting: The Role of Board Composition

This paper aims to explore the impact of\r\ncorporate governance mechanisms on managerial\r\nopportunism in reporting unrealized gains and losses under\r\nfair value accounting. Building on the agency theory, we\r\nexplore the relationship between the board of directors’\r\ncomposition and other comprehensive income (OCI)\r\nreporting choices. Based on previous findings, our\r\nconceptual model suggests that more effective boards\r\ncould limit managers’ accounting manipulation in OCI\r\nitems reporting, through the exercise of stronger\r\nmonitoring and advising functions. Using a sample of 54\r\nItalian listed firms for the period 2009-2018, we provide\r\nevidence that while larger boards negatively affect OCI\r\nchanges, gender board homophily exerts a positive effect\r\non the magnitude of total OCI. Consistent with our\r\npredictions, our results therefore suggest that more diverse\r\nboards may hinder managerial ability to distort financial\r\ninformation to their advantage. Overall, our study\r\ncontributes to the ongoing debate on fair value accounting\r\nand financial information usefulness, also adding to the\r\nliterature on firms’ transparency and corporate governance,\r\nconfirming their mutually supporting role.