An assessment into the link between Board Diversity and Accounting Quality among firms listed in the East African Community Securities Exchanges

Abstract

The study sought to analyze the effect of board diversity on the quality of accounting for firms listed at the East African Community securities exchanges. Data was obtained from 53 companies whose shares are publicly listed in the EAC stock exchanges for the years 2013 to 2020. Secondary and primary data was utilized to test the study’s hypothesis. Multiple regression analysis was applied to analyze the research’s hypothesis. Director profiles in the annual reports provided board diversity data, adoption of IFRS was obtained through an IFRS disclosure index derived from IASB disclosure checklists, quality of accounting information was assessed by value relevance of financial information, fundamental qualitative aspects of financial information and management of earnings. The study’s results establish a strong association between diversity in boards and accounting quality as assessed by the three indicators of management of earnings, fundamental qualitative attributes and the value relevance of accounting information for the listed firms in EAC, it was further established that the diversity in boards in EAC firms is generally low. The results confirm relevance of the upper echelons theory in East Africa. It can be concluded therefore that board diversity influences the quality of financial reporting for EAC listed firms. The study contributes to the existing knowledge on board diversity and quality of financial reporting by documenting the findings for EAC listed firms. The study however relied on the observable aspects of diversity attributes ignoring the unobservable which may equally have a significant effect. Capital markets authorities in the EAC should develop policies to enhance the diversity in boards in order for the EAC firms to realize the full benefits of having diverse boards. Future scholars can consider applying other methodology different from the regression analysis adopted in the study which may yield different results from the ones documented in the current study.

Keywords: Board diversity, accounting quality