Female directors on audit committees, the gender of financial experts, and internal control weaknesses: evidence from Iran

While there is little evidence on the relationship between board gender diversity and internal control weaknesses (ICWs), existing studies are based on the U.S. data. We extend the literature by examining the relationship between female directors on audit committees (ACs) and ICWs in Iran, a developing country with different cultural and corporate governance characteristics from western countries, which are the focus of most previous studies. We further split financial expert directors on ACs by gender and examine whether female and male financial experts on ACs are associated with ICWs. Using hand-collected data of 181 unique firms on the Tehran Stock Exchange (TSE) over the period 2013-2018, we find that firms with female representation on the AC are less likely to have ICWs. We also find that female financial experts on ACs are associated with fewer ICWs, whereas male financial experts on ACs are not significantly associated with ICWs. These results remain robust after performing several sensitivity tests. Overall, our results are interesting and indicate that the presence of female directors has a positive effect on corporate outcomes even in such an environment that is expected to yield different results. Our study has practical implications for Iranian regulators about gender-diversity policies.