The global call to improve gender diversity on company boards should get a boost from the results of a new study co-authored by CEIBS Professor of Finance and Accounting Oliver Rui, which show that firms with a high proportion of female directors on their board and led by female chairpersons commit less fraud.

In their research study, Professor Rui and his co-authors, Douglas Cumming of York University Schulich School of Business and Tak Yan Leung from Open University of Hong Kong, examined the impact of gender difference on corporate fraud in China over a 10 year period (between 2001 and 2010). The researchers looked at data regarding enforcement action announcements made by the China Securities Regulatory Commission (CSRC) for regulatory and fraud violations committed by listed Chinese companies. Their findings show that a more gender-diverse board can help minimize the likelihood and severity of corporate fraud; thus the inclusion of more female board directors can be an effective anti-fraud control mechanism to set an ethical tone in the workplace.

Their findings also indicate that the market response to fraud from a gender diverse board is significantly less pronounced – companies with a greater presence of females on their boards saw less impact on their share price when instances of regulatory or fraud violations were announced.

Previous studies have shown that on average an organization loses about 5% of revenue to fraud annually, which can be translated to a potential total global fraud loss of more than US$2.9 trillion, and that there is a significantly higher percentage (two-thirds) of fraud committed by males in every region of the world. The results of Prof Rui’s research suggest that women are more ethically sensitive and less likely to take risks to commit fraud, thus policy makers or regulators of board composition should consider the issue of a more gender diverse board to reduce the risk of corporate fraud. The research results appear in a paper entitled “Gender Diversity and Securities Fraud”. The paper received the 11th Eurasia Business and Economics Society (EBES) Conference Best Paper Award given at the Conference in Ekaterinburg, Russia in September, 2013.