Corporate Philanthropy, Board Gender Diversity, and Real Earnings Management: Evidence from G7 Firms

Abstract

This study investigates whether corporate philanthropy can act as a safeguard against REM, and whether women’s participation on boards strengthens this relationship. Using panel data of publicly listed firms from G7 economies from 2010 to 2022, the study employs fixed-effects regression models to test the hypotheses. REM was measured through abnormal discretionary expenses, while corporate philanthropy was captured by total donations. Women’s participation was measured by the percentage of female directors on boards. The models also included market-to-book ratio, return on assets, board expertise, board size, governance score, shareholder score, corruption control, governance effectiveness, and political stability as controls. The results show that corporate philanthropy is negatively associated with REM, suggesting that genuine charitable giving helps reduce earnings manipulation. Women’s participation on boards also reduces REM, reinforcing the view that diverse boards strengthen ethical oversight. Importantly, the interaction term reveals that female directors enhance the effect of philanthropy indicating that philanthropy efforts become more credible and effective when supported by gender-diverse governance. The study concludes that philanthropy and board diversity serve as complementary mechanisms for promoting ethical corporate behavior. It is recommended that firms integrate philanthropy into long-term ethical strategies and policymakers strengthen gender diversity reforms to improve financial integrity.