product lines and gender diversity of top management in accounting firms and their influence on...

THE UNIVERSITYOF ILLINOIS SPRINGFIELD

PRODUCT LINES AND GENDER DIVERSITY OF TOP MANAGEMENT IN ACCOUNTING FIRMS AND THEIR INFLUENCE ON REVENUE STREAMS

A MASTERS PROJECT SUBMITTED TOTHE FACULTY OF THE ACCOUNTANCY DEPARTMENT

FOR THE DEGREE OFMASTERS IN ACCOUNTANCY

DEPARTMENT OF ACCOUNTANCY

By

SIWEN TANG

SPRINGFIELD, ILLINOIS

MAY 2016

CONTENTS

INTRODUCTION 1

LITERATURE REVIEW 4

OBJECTIVES and HYPOTHESES OF STUDY 10

METHODOLOGY 13

DATA COLLECTION 13

MEASUREMENT OF VARIABLES 16

STATISTICAL TECHNIQUES 17

RESULTS 18

IMPLICATIONS AND RECOMMENDATIONS 24

CONCLUSIONS 27

APPENDIX 1 (or APPENDIX A, or APPENDIX ONE) 29

REFERENCE LIST 31

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INTRODUCTION

A board of directors serves at the center of decision-making and control systems,

and plays a fundamental role in the government of large companies (Lara, Osma, and

Penalva, 2007). The directors are viewed as assets because they have skills, experience,

knowledge, judgment, and expertise that are important to meet the needs of the firm

(Scarborough, Haynie, and Shook, 2010). They are responsible for governance and

overseeing the overall direction and functioning of the organization (Carroll and

Buchholtz, 2011). For instance, they perform the important function of monitoring the

actions of top management (Fama, 1980), they guarantee that investors obtain a return for

their investment (Shleifer and Vishny, 1997), and they are responsible for the protection

of shareholders’ rights by ensuring that the interest of managers and shareholders are

aligned in the same direction (Kang, 2007).

Previous research shows that the characteristics and constitution of a board of

directors influence firm performance in different aspects. Corporations are now facing

various significant governance issues, of which diversity is most significant. (Kang,

Cheng, and Gray, 2007). In corporate governance, board diversity is defined as the board

composition of the qualities, characteristics, properties, skills, and expertise of individual

members that help to make decisions in the board (Ferreira, 2010).

Diversity covers aspects such as gender, age, and independence of directors

(Kang, Cheng, and Gray, 2007), and previous researchers have identified several

relationships between these factors and firm performance. For instance, previous research

shows that female board representation is positively related to accounting returns; this

relationship is especially positive if there are strong shareholder protections in the

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market. The same research also identifies that there are positive relationships between the

board diversity and two of the board’s primary responsibilities: monitoring and strategy

involvement (Post and Byron, 2015); Also, previous research identifies that the

relationships between the age, experience, and quality of the CEO or Chair and the firm’s

performance are mixed. The firm’s performance will be negatively influenced if a CEO

or Chairperson holds multiple board seats, whereas CEO duality has a positive

relationship with Tobin’s Q, which equals the total market value of a firm divided by

total asset value of a firm, and the return on assets (ROA) of the firm (Peni, 2012).

According to Core (1999), there is a negative relationship between the board

characteristics that CEO is also the chairman of the board and the overall performance of

a firm (quoted in Lara, Qsma, and Penalva, 2007). Scholars from Cornell University also

found that relatively narcissistic CEOs tend to resist the prior experience of other

directors, and tend to adopt the corresponding opposite strategies (Zhu and Chen, 2015).

Today, more companies in the accounting industry are realizing the importance of

corporate diversity. Many of the accounting firms nowadays have developed various

diversity programs to attract foreign talents and provide them with a better working

environment. As the top firms in the accounting industry, all of the Big Four accounting

firms to some extent clarify their commitment to workplace diversity on their official

websites. For example, Price Waterhouse Coopers (2016) stated their commitment to

diversity as

Our diversity initiatives and strategies are designed to attract, develop, and advance the most talented individuals regardless of their race, sexual orientation, religion, age, gender, disability status or any other dimension of diversity. Our distinctive approach to diversity is based on a belief that we each have a personal accountability for success in this area. We provide our people with training and tools to help increase their awareness

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and understanding of differences and why they matter, so their actions can contribute to our inclusive and high-performing workplace culture.

As Deloitte (2016) stated in the section of board diversity on its company website, “a

board seeking diversity will typically consider gender, ethnicity, and professional

background.”

An organization is a reflection of its top executives; the characteristics and the

functioning of the top management team are likely to be the organizational predictors

(Hambrick and Mason, 1984). Although various relationships between board diversity

and firm performance have been widely discussed in previous research, the discussions

relevant to potential relationships between gender diversity in top management and the

revenue performance in partnerships, especially accounting firms, is limited.

Sumbul Sajjad and Kashif Rashid (2015) once studied the relationship between

board diversity and firm performance, giving evidence from the banking sector in

Pakistan. This paper uses research methods established in Sajjad and Rashid’s study and

examines the relationship between top management diversity and accounting firm

performance by analyzing evidence from the top 100 accounting firms in the United

States. This study also discusses the literature to enable a better understanding of

different aspects of top management diversity and their influences. Finally, this research

also examines the relationship between the percentage of total revenue provided by each

revenue stream and the revenue performance of accounting firms.

Since most of the accounting firms are partnerships, financial statements and

board information are not always available and updated online. Unlike those of the public

companies, accounting firms’ information that relate to directors’ age, nationality,

education background, and personal career path can be difficult and unpractical to obtain.

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Because of these obstacles in developing the research, top management’s gender diversity

will be the only factor examined in this research.

In order to examine the existence of the potential benefits of women at the board

level, this study first compares the number of women holding top management positions

in the top 50 accounting firms with those in the bottom 50 accounting firms to determine

if there is a significant difference in the presence of women, which is evaluated by the

proportion of women in top management positions. This study next examines top

management’s gender diversity and its influence on accounting firms’ revenue

performance. In the end, this study examines the relationships between the proportion of

each revenue stream and the revenue performance of accounting firms.

LITERATURE REVIEW

Gender Diversity and Its Impact on Firm Performance

Dutta and Bose once defined Gender Diversity as the presence of women on the

board of directors, and they pointed out that gender diversity is an important aspect of

board diversity (Dutta and Bose, 2007). Gender diversity is one of the major signals of

diversity in the firm (Turgut and Hafsi, 2008). A growing body of empirical research

casts doubt on its efficacy by focusing on the structural characteristics of boards and their

relationship to firm performance (Hillman, Shropshire, & Canella, 2007). Of particular

interest is whether the gender issue matters to enforce contracts and minimize agency

costs (Kakabadse, Figueira, nicolopoulou, Yang, Kakabadse, and Ozbilgin, 2015).

Companies are now recognizing gender diversity of a board of directors as an important

value-driver (Terjesen, Sealy, and Singh, 2009). According to previous research, female

board members usually have gained better education and achieved higher nonbusiness

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qualifications during their career path; they have also gained work experience in various

high-level positions before they work as top managers in an organization (Hillman,

Cannella, and Harris, 2002). As a result, as many studies have found, female board

members are especially sensitive to ethical and social issues, and they usually draw a

board’s attention to the impact of decisions on community stakeholders (Ali, Ng and

Kulik, 2014).

In the United States, women now hold more than 40% of all managerial positions

but their presence in the top executive positions remains small (Eagly and Carli, 2007;

Jenkins, 2012). Though there is evidence for some country-specific variance, the global

picture is clear in that the disproportionately lower representation of women in senior

management is not a phenomenon particular to certain countries; rather, it is a global

phenomenon found all over the world, although to varying degrees (De Cieri, 2009;

Terjesen and Singh, 2008).

Today, women still hold few board seats (Kakabadse, Figueira, Nicolopoulou,

Yang, and Ozbilgin, 2015), but countries around the world are realizing the importance of

diversity issues and are improving the situation gradually. Previous research has

identified a steady improvement in the number of female directors on board across the

globe (Dutta and Bose, 2007), and there has been a drastic increase in the number of

females as managers and professionals during the last 20 years throughout the world

(Sajjad and Rashid, 2015). By 2010, women constituted 16 percent of the directors of

S&P 500 companies in the United States (Stuart, 2010). In 2011, France adopted a law

stipulating that by 2017, women must represent 40 percent of board members among the

largest publicly traded companies (Dang and Vo, 2014).

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Today, it is still unclear whether increasing the presence of women on boards

improves firm performance, although many companies and organizations are arguing for

the increase (Post and Byron, 2015). Previous studies found the relationship between

board diversity and firm performance to be mixed and inconsistent.

A higher representation of women on boards is likely to have trickle down

diversity effects, increasing the representation of women in senior management positions,

management roles, and the overall workforce (Bilimoria, 2006; Kurtulus and

Tomaskovic-Devey, 2012; Terjesen and Singh, 2008). On the other hand, companies

nowadays are hiring more women into their top-management positions because they hope

to attract increasing interest among the general public and policy makers (Holst and

Schimeta, 2012). Previous research also found that female top managers usually bring

diversity benefits into the entire company, such as enriching the top management

behaviors throughout the firm, and motivating women in middle management positions

(Dezso and Ross, 2012).

Previous studies also confirmed that firms tend to generate more abnormal returns

in complex market environment when they have more female officers on board. Also,

firms tend to generate more value and stock market returns when they possess a high

proportion of women in their management and governance roles (Francoeur, Labelle, and

Sinclair-Desgagne, 2008). A study using a regression analysis for 127 US firms for the

time period between 1993–1998 shows that a diverse board leads to improved firm

performance indicated by ROA and higher investment by the firm (Erhardt, Werbel, and

Shrader, 2003). Also, high board diversity has a positive effect on firm performance by

raising profits for the firm (Walt, 2006). A study of fortune 500 companies for the time

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period between 1998 and 2002 also shows that gender diversity improves firm value

measured by Tobin’s Q specifically via the audit function of the board (Carter, 2007). In

2008, Turgut and Hafsi also stated in their study that gender diversity has a positive

impact on the firm’s value.

However, previous research also identifies that female representation in top

management improves firm performance when the firm’s core strategy is innovation.

Women in management is especially important because of the relationship between

informational and social benefits of gender diversity, and management task performance

(Dezso and Ross, 2012). Given certain circumstances, previous research has even

discovered a negative relationship between board diversity and firm performance. Sabri

Boubaker, Rey Dang, and Duc K. Nguyen (2014) argue that adding more women to

boards of directors sometimes may generate counter-productive results and lead to lower

financial performance.

Gender diversity indeed has an important influence on the accounting profession.

For instance, previous findings suggest that women auditors tend to discover more

potential misstatements than male auditors (Breesch and Branson, 2009). Since the

quality of audit services is defined to be the probability that the auditor discovers and

reports a material misstatement in the financial statements (DeAngelo, 1981), the

characteristics of women auditors may to some extent contribute to their quality of

auditing services. According to Breesch and Branson (2009), the existing literature

suggests that gender has a significant influence on the manner in which information is

collected and processed (quoted in Meyers-Levy, 1989). There is evidence from

psychology that women tend to be significantly more risk averse than men, although the

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gap has been shrinking over time (Byrnes, Miller, and Schafer, 1999). It is suggested that

women work more efficiently in complex decision making situations and they make more

accurate decisions (Diberardinis, Ramagage, and Levitt, 1984; Sexton and Bowman,

1990; and Darley and Smith, 1995).

This study focuses on the influences of gender diversity among top management

positions in the top 100 accounting firms to further analyze the relationship between

gender diversity and firm performance.

Proportion of Revenue Streams and Its Impact on Firm Performance

Accounting firms usually generate their revenue from three main sources, which

include accounting and auditing services, tax services, and management advisory services

(MAS). A regulatory authority usually mandates audit or tax work, however, MAS

engagements tend to be more needs based. Accounting firms need to demonstrate to their

clients that the MAS engagement will provide those clients with tangible benefits, which

include but are not limited to bottom line figures or improving operational efficiency

(Kuttner, 1990).

The public accounting industry in the United States went through a significant

transformation during the late 1990s (Banker, Chang, and Natarajan, 2005). MAS

practice in public accounting firms was increasing at a tremendous rate. The data once

indicated that MAS practice would account for approximately 18 percent of all CPA firm

revenue in 1988, which contrasted with only 8 percent in 1978 (Stocks and McKell,

1987). According to the rankings organized by Accounting Today agency, MAS practice

accounts for more than 20 percent of the top 50 accounting firms’ revenue today. One

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possible benefit of performance of MAS for an audit client is that subsequent audits may

be less costly due to improved information systems (Public Oversight Board, 1979).

Previous studies suggest that firms that provided MAS early and emphasized their

growth in MAS section once generated significantly higher productivity growth than

other accounting firms, and they were able to facilitate the development of technology in

the accounting industry (Banker, Chang, and Natarajan, 2005). With the rapid

development of computer technology and data science, accounting firms nowadays are

able to provide their clients various types of services, such as forecasting, budgeting, and

financial analysis efficiently and accurately. These improvements will to some extent

foster the needs for MAS and facilitate the service quality of management advisory

provided by professional firms. Services such as tax, audit, and financial reporting must

be augmented by advisory services such as strategic, business, and individual planning.

Helping the business owner develop a more successful and profitable business is

infinitely more important than an hourly rate or help with an audit, and clients must be

made aware of these new services and assistance that the CPA can now provide

(Hartstein, 2013).

Compared to the rapid development of MAS, traditional services, such as auditing

and taxes, have not been reformed or developed much. According to the CPA Personnel

Report, in early August, 2003, PricewaterhouseCoopers once cut 80 senior managers and

directors in its tax practice. The cuts were scattered around the country, and took about

one week to complete. However, PwC declined to comment on why the layoffs were

necessary.

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OBJECTIVES AND HYPOTHESES OF THE STUDY

Objectives:

According to the AICPA report 2015 Trends in the Supply of Accounting

Graduates and the Demand for Public Accounting Recruits, the data of recruiting at

public accounting firms reached a new record level in 2013-2014 (Vien, 2015).

Meanwhile, the AICPA 2015 The CPA Firm Top Issues Survey published in September

2015 stated that talent pool concerns and retaining qualified staff have emerged as the

most pressing issues for all but the smallest CPA firms.

Previous research shows that over 50% of today’s accounting graduates are

women, and the pressure to provide a rewarding work environment becomes even more

challenging. Firms that don’t rise to this challenge have even more difficulty competing

in a very aggressive recruiting marketplace (Kridel, 2007). Successful companies in the

financial services industry nowadays have various well-developed internships or

experienced professionals programs to recruit new leaders to replace retiring partners and

fulfill company talent pools. For instance, Price Waterhouse Coopers classified their

recruiting target groups into three categories, which include campus, experienced, and

executive. Investment banks, such as Goldman Sachs and Morgan Stanley, launched their

summer analyst programs to learn more about their potential full-time employees and to

provide junior and senior college students with an internship opportunity.

Studying gender implication has become more important since the introduction of

a High Performance Work System in modern organizations. Revolutionary systems

cannot produce desirable excellence if the system is perceived and treated differently by

male and female managers. In this context it has become imperative to give due

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consideration to implication of gender based differences in a work organization (Garg

and Punia, 2015). In consideration of corporate diversity’s far-reaching influences,

examining the relationship between corporate diversity and firm performance may help

guide the recruiting and promoting processes of companies’ top managers, and help

companies optimize their organizational structures.

On the other hand, previous research that focuses on studying the relationship

between revenue streams and firms’ overall performance is limited, especially for

accounting firms. Accounting firms nowadays generate revenue from three main services,

which include accounting & auditing Services, taxation Services, and management

advisory services. This study will examine the existence of the relationship between the

percentages of each revenue stream and the overall revenue performance of accounting

firms. Studying this relationship will allow accounting firms to better allocate their

financial, management, and human resources to their most profitable service products in

order to generate greater performance.

The objectives of this research are summarized as follows:

Objective 1: Examine the relationship between the number of top managers and

the revenue performance of accounting firms.

Objective 2: Examine the relationship between top management gender diversity

and the revenue performance of accounting firms.

Objective 3: Examine the relationship between the proportion of the revenue

stream of Accounting & Auditing services and the total revenue of accounting firms.


stream of taxation services and the total revenue of accounting firms.

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stream of management advisory services and the total revenue of accounting firms.

Hypotheses:

Existing empirical studies on the relationship between gender diversity of top

management and firm performance has produced mixed results, and previous research

has not addressed the related issues of causality (Terjesen, Sealy, and Singh, 2009).

Some previous studies have identified a positive linear relationship between

gender diversity and employee productivity, and researchers have stated that

organizations with high levels of board gender diversity generate relatively high levels of

employee productivity (Ali, Ng, and Kulik, 2014).

On the other hand, negative relationships between gender diversity and firm

performance have also been found. In a study published in 2007, Lee and James (2007)

pointed out the well-known finding that hiring a female chief executive officer (CEO)

produces a negative influence on the companies’ stock price; but the appointment of

women to other senior positions does not produce a reaction. One of the previous studies

also pointed out that currently there’s still a male-oriented global performance

management situation, and female managers might not be able to match those practices,

therefore, female managers tend to be less satisfied with the existing procedures of global

performance (Festing, Knappert, and Kornau, 2015).

Dezso and Ross’s research identified no evidence that female representation in

top management may impair firm performance as long as the firm’s strategy is focused to

some positive degree on innovation (Dezso and Ross, 2012). Considering the essence of

the accounting industry and the preciseness of accounting work, the level of innovation in

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accounting firms is assumed to be relatively low. Therefore, the relationship between the

gender diversity of top management in accounting firms and the total revenue of

accounting firms is assumed to be inconspicuous.

H1: There is no statistical relationship between the number of top manager and

the total revenue of accounting firms.

H2: There is no statistical relationship between gender diversity of accounting

firms’ top management and the total revenue of accounting firms.

Considering the rapid development, growing proportion, and demonstrated

success of the management advisory services in the accounting industry, a positive

relationship between the proportion of management advisory services revenue and total

revenue of accounting firms is assumed. However, the proportion of traditional services,

such as auditing and tax services, are assumed to have negative relationships with the

total revenue of accounting firms.

H3: There is a negative relationship between the proportion of the revenue stream

of accounting & auditing services and the total revenue of accounting firms.

H4: There is a negative relationship between the proportion of the revenue stream

of taxation services and the total revenue of accounting firms.

H5: There is a positive relationship between the proportion of the revenue stream

of management advisory services and the total revenue of accounting firms.

METHODOLOGY

Data Collection:

The dataset of the 2015 top 100 accounting firms in the United States, listed by

the Accounting Today agency, was taken as the sample for this study. The sample size is

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100 and the ranking is based on accounting firms’ 2014 total revenue. The same agency

also listed the revenue streams percentage for each of these 100 accounting firms under

the section of “fee split.” Therefore, the information about companies’ total revenue,

revenue streams, and their rankings is adopted directly from “The 2015 Accounting

Today Top 100 Firms.”

The dependent and independent variables of this study are listed in Table 1 and

the measurement of these variables is also given. The dependent variable for the study is

the revenue of the top 100 accounting firms in the United States. The revenue data was

directly adopted from the rankings of the top 100 accounting firms in the U.S. provided

by Accounting Today agency. The data for the independent variables used in this study,

such as the percentage for revenue streams in each of these accounting firms, was also

adopted from the rankings provided by Accounting Today. The data for the independent

variables such as the gender diversity of top management positions in these accounting

firms were collected from their official websites. Usually this information is listed under

the “Leadership,” “Management Team,” or “Our Directors” sections. For those firms

without public leadership information, gender diversity data of their top management

team was collected from the listed information under their “Our People” or “Our Team”

sections, and was further analyzed by classifying their professionals by positions and

titles.

Historically, accountants who work in the public accounting industry advance

their career from working as a staff, senior, manager, senior manager, and, ultimately,

partner. However, instead of being promoted to partner positions, recent AICPA data

suggests that senior managers are increasingly promoted to positions such as

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“director/principal” rather than to partner (AICPA, 2006). Other studies also suggest that

women are more likely to be promoted to these non-equity positions than to partnerships

(Lightbody and Single, 2011). Since this research deals with the examination of gender

diversity for top management, positions and titles involving a large amount of firm

management and operation should be taken into consideration.

Previous published surveys suggested that the “director” positions were used to

support many different roles and functions in a CPA firm. The respondents of the surveys

indicated that “while the positions in some cases are an extra step on the way to the

partnership, in other cases they are an opportunity for highly valued professionals to stay

in the firm without ever becoming an equity partner” (Lightbody and Single, 2011).

According to the surveys, in general, directors are usually involved with a large amount

of engagement management and direct the development of the CPA firm, while partners

usually do the primary business development and do not participate in much management

work (Lightbody and Single, 2011). Therefore, partners, as the owners of the accounting

firms, may not participate in daily management. However, the directors or principals are

those managers who direct the firm and manage the operations.

Table 1: Variables for Top Management Diversity, Revenue Stream Percentage, and

Firm Performance Relationship

Variable Definition Nature

Firm Revenue Revenue of each accounting firm generated in 2014 Dependent

MANAGER Total number of top managers Independent

PWOMEN Proportion of women directors / top managers Independent

PA&A Proportion of the Accounting & Auditing revenue Independent

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PTAX Proportion of the Tax services revenue Independent

PMAS Proportion of the Management Advisory revenue Independent

Measurement of Variables:

Dutta and Bose defined gender diversity as the presence of women on the board

of directors (Dutta and Bose, 2007). Sajjad and Rashid defined the proportion of women

directors in their 2015 research as the ratio of total number of female directors to the total

number of directors on the board (Sajjad and Rashid, 2015). Because of its face validity,

gender diversity of top management in this research is measured by the ratio of the total

number of female in top management positions to the total number of top managers in

each of the top 100 accounting firms in the United States.

To compare the percentage of gender diversity for top management among the top

100 accounting firms, the groups of top management and their titles need to be clearly

identified. Different accounting firms use different titles for their top management

positions. For instance, the Big Four accounting firms list the members of their board of

directors on their official website; public accounting firms like Montgomery Coscia

Greilich lists information about their partners only; Directors’ information is available on

the company website for RGL Forensics; however, directors’ information is mixed with

principals positions for companies like Seiler. Based on the data collected from the top

100 accounting firms in the United States, Accounting firms may use “board of

directors,” “executive committee,” or “leadership teams” to identify their top

management groups. Top management members may contain Chief Executive Officers,

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Chief Operation Officers, corporate directors, principals, partners, managing partners,

and partners-in-charge.

To get a sample information that related to the gender diversity of top

management for each of the top 100 accounting firms was evaluated. In this study,

information regarding whether a company has a “board of directors,” “executive

committee,” and “leadership team” was first collected and analyzed. For those companies

without a board of directors, information about employees with the title of “director” or

“principal” was secondarily considered. For company websites without employees’ titles,

information on partners was finally considered.

Data for other variables are all adopted from the Top 100 Accounting Firm

ranking provided by the Accounting Today agency.

Statistical Techniques:

To analyze the relationships between each independent variable and the

dependent variable, a multiple regression analysis was used in this research to identify the

independent variable that has a significant impact on the variance of total revenue. The

significant variable should have a coefficient of 0.05 or less. The backward stepwise

regression analysis is used to test and verify the significant variables.

To generate a better understanding of the size influence to these accounting firms,

the dataset was divided into two groups: group 1 includes the top 50 accounting firms and

group 2 includes the bottom 50 accounting firms. A regression analysis was first

completed for group 1 to identify the significant independent variables in the top 50

accounting firms, and their impact on total revenue. A regression analysis was then

completed for group 2 to identify the significant independent variables in the bottom 50

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accounting firms. Finally, the regression analysis was completed on the total top 100

accounting firms to examine whether the results would change in a larger sample.

RESULTS

Multiple Regression analysis was first completed on the group of the top 50

accounting firms. In a regression analysis, a significance factor that is less than 0.05

should be considered to be significant. According to the results of the regression analysis

for the top 50 accounting firms, the percentage of the revenue stream of tax services,

which has a significance factor of 0.016, is the only factor that is significantly related to

the total revenue of these accounting firms. Since the B value is -179.925 on the analysis

result, the relationship between the percentage of tax revenue stream and the total

revenue performance is negative, which means the higher the percentage of tax services

revenue stream is, the lower the total revenue of the top 50 accounting firms will be. This

relationship explains 10.5% of the variance in the revenue.

Standardized

Coefficients

B Std. Error Beta Tolerance VIF

(Constant)8775.028 3247.185 2.702 .011

# of Top Mgt

-18.335 18.294 -.172 -1.002 .323 .783 1.277

Top Mgt Diversity %

21.588 58.507 .077 .369 .714 .534 1.874

A&A -24.211 48.003 -.081 -.504 .617 .882 1.133Tax -179.725 71.153 -.420 -2.526 .016 .830 1.205Other -63.180 90.156 -.139 -.701 .488 .581 1.722

Model

Unstandardized Coefficients

t Sig.

Collinearity Statistics

Table 2: Top 50 Accounting Firms - Coefficientsa

1

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Table 3: Top 50 Accounting Firms - Model Summary

Model RR

Square

Adjusted R

Square

Std. Error of the

Estimate1 .468a .219 .105 3173.699

2

Backward Stepwise analysis was also completed on the top 50 accounting firms,

and the result matched the regression analysis result that indicated that tax was the only

significant variable.

Results for the top 50 accounting firms also suggest that gender diversity of top

management, with a significance factor of 0.714, seems to have no significant impact on

accounting firms’ total revenue, which is in consistent with the hypothesis.

Both the proportion of management advisory services and the proportion of

accounting & auditing services seem to have no significant impact on the total revenue of

the top 50 accounting firms in this model. Therefore, hypothesis 2 and hypothesis 4 are

not confirmed in this analysis.

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Standardized

Coefficients

B Std. Error Beta Tolerance VIF

(Constant)8775.028 3247.185 2.702 .011

# of Top Mgt

-18.335 18.294 -.172 -1.002 .323 .783 1.277

Top Mgt Diversity %

21.588 58.507 .077 .369 .714 .534 1.874

A&A -24.211 48.003 -.081 -.504 .617 .882 1.133Tax -179.725 71.153 -.420 -2.526 .016 .830 1.205Other -63.180 90.156 -.139 -.701 .488 .581 1.722(Constant)

9343.587 2822.817 3.310 .002

# of Top Mgt

-21.014 16.583 -.197 -1.267 .213 .929 1.076

A&A -19.509 45.707 -.066 -.427 .672 .949 1.053Tax -187.926 66.753 -.439 -2.815 .008 .919 1.088Other -42.036 68.738 -.093 -.612 .545 .974 1.027(Constant)

8753.033 2432.398 3.599 .001

# of Top Mgt

-21.836 16.283 -.204 -1.341 .188 .942 1.061

Tax -193.125 64.883 -.451 -2.976 .005 .951 1.051Other -38.649 67.498 -.085 -.573 .570 .987 1.013(Constant)

8559.043 2386.711 3.586 .001

# of Top Mgt

-22.777 16.052 -.213 -1.419 .164 .952 1.051

Tax -192.104 64.267 -.449 -2.989 .005 .952 1.051(Constant)

7236.024 2226.162 3.250 .002

Tax -172.086 63.530 -.402 -2.709 .010 1.000 1.000

1

2

3

4

5

Table 4: Top 50 Accounting Firms - Backward Stepwise Coefficientsa

Model


t Sig.


A regression analysis was then completed on the group of the bottom 50

accounting firms. Unfortunately, all of the independent variables seem to have no

significant impact on the total revenue in this analysis. The relationships between

independent and dependent variables can only explain 0.3% of the variance in the

revenue. A backward stepwise regression analysis was also completed on this model,

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which generated the same conclusion for this group. None of the independent variables

were significantly related to the firms’ total revenue performance.

Standardized

Coefficients

B Std. Error BetaLower Bound

Upper Bound Tolerance VIF

(Constant)34.849 8.405 4.146 .000 17.898 51.800

# of TOP MGT

.140 .103 .220 1.355 .183 -.068 .348 .791 1.265

MGT Diversity %

-.017 .092 -.030 -.182 .856 -.202 .168 .785 1.274

TAX .130 .140 .163 .927 .359 -.153 .413 .675 1.480MAS .178 .145 .209 1.226 .227 -.115 .470 .712 1.404OTHER .128 .099 .244 1.297 .202 -.071 .327 .589 1.698

Table 5: Bottom 50 Accounting Firms - Coefficientsa


1Model


t Sig.

95.0% Confidence Interval for B

R R SquareAdjusted R Square

Std. Error of the

Estimate

1 .326a .107 .003 10.5598

Model

Table 6: Bottom 50 Accounting Firms - Model Summary

21

Standardized

Coefficients



(Constant)34.849 8.405 4.146 .000 17.898 51.800

# of TOP MGT

.140 .103 .220 1.355 .183 -.068 .348 .791 1.265

MGT Diversity %

-.017 .092 -.030 -.182 .856 -.202 .168 .785 1.274

TAX .130 .140 .163 .927 .359 -.153 .413 .675 1.480MAS .178 .145 .209 1.226 .227 -.115 .470 .712 1.404OTHER .128 .099 .244 1.297 .202 -.071 .327 .589 1.698(Constant)

34.073 7.171 4.752 .000 19.622 48.525

# of TOP MGT

.148 .092 .232 1.605 .116 -.038 .333 .970 1.031

TAX .130 .139 .162 .936 .354 -.150 .410 .675 1.480MAS .181 .142 .213 1.275 .209 -.105 .468 .725 1.380OTHER .128 .098 .244 1.313 .196 -.068 .325 .589 1.698(Constant)

39.750 3.824 10.395 .000 32.048 47.451

# of TOP MGT

.154 .092 .243 1.684 .099 -.030 .339 .976 1.025

MAS .131 .131 .154 .996 .325 -.134 .396 .845 1.183OTHER .078 .081 .148 .957 .344 -.086 .241 .847 1.180(Constant)

41.752 3.197 13.060 .000 35.317 48.187

# of TOP MGT

.147 .091 .232 1.613 .114 -.036 .331 .982 1.018

MAS .084 .122 .099 .689 .494 -.161 .329 .982 1.018(Constant)

42.616 2.925 14.571 .000 36.733 48.500

# of TOP MGT

.156 .090 .245 1.731 .090 -.025 .337 1.000 1.000

2

3

4

5

Table 7: Bottom 50 Accounting Firms - Backward Stepwise Coefficientsa

Model


t Sig.

95.0% Confidence Interval for B Collinearity Statistics

1

Finally, the regression analysis was completed on the whole group of the top 100

accounting firms in the United States. The results for this model suggest that all tax,

auditing, and other services are significantly influencing the total revenue of the

accounting firms. These relationships explain 6.4% variance in the revenue. With the

results of the backward stepwise analysis, the results for this model indicate they all

influence the total revenue in a negative way. The variable of management advisory

services was also excluded during the analyzing process. However, there was a strong

22

positive relationship between the variable of management advisory services and the total

revenue when this independent variable was applied individually.

Standardized

Coefficients



(Constant)4768.280 1359.198 3.508 .001 2068.795 7467.765

# of TOP MGT

-9.243 8.964 -.103 -1.031 .305 -27.047 8.560 .965 1.037

MGT Diversity %

685.917 1407.864 .051 .487 .627 -2110.223 3482.057 .880 1.137

AUDITING -39.733 19.382 -.246 -2.050 .043 -78.227 -1.239 .672 1.488TAX -59.950 20.935 -.329 -2.864 .005 -101.528 -18.372 .730 1.370OTHER -48.733 18.235 -.349 -2.672 .009 -84.950 -12.516 .566 1.768

Table 8: All 100 Accounting Firms - Coefficientsa


1Model


t Sig.

95.0% Confidence Interval for B

R R SquareAdjusted R Square

Std. Error of the Estimate

1 .335a .112 .064 2148.57308

Table 9: All 100 Accounting Firms - Model Summary

Model

Standardized Coefficients



(Constant)4768.280 1359.198 3.508 .001 2068.795 7467.765

# of TOP MGT

-9.243 8.964 -.103 -1.031 .305 -27.047 8.560 .965 1.037

MGT Diversity %

685.917 1407.864 .051 .487 .627 -2110.223 3482.057 .880 1.137

AUDITING -39.733 19.382 -.246 -2.050 .043 -78.227 -1.239 .672 1.488TAX -59.950 20.935 -.329 -2.864 .005 -101.528 -18.372 .730 1.370OTHER -48.733 18.235 -.349 -2.672 .009 -84.950 -12.516 .566 1.768(Constant)

4820.127 1349.458 3.572 .001 2140.370 7499.884

# of TOP MGT

-10.027 8.782 -.112 -1.142 .257 -27.467 7.413 .997 1.003

AUDITING -38.195 19.045 -.236 -2.006 .048 -76.014 -.376 .690 1.449TAX -57.774 20.368 -.317 -2.836 .006 -98.221 -17.326 .765 1.308OTHER -46.185 17.397 -.331 -2.655 .009 -80.732 -11.637 .616 1.622(Constant)

4485.210 1319.311 3.400 .001 1865.687 7104.734

AUDITING -37.742 19.071 -.233 -1.979 .051 -75.608 .124 .691 1.448TAX -57.332 20.398 -.315 -2.811 .006 -97.832 -16.832 .765 1.307OTHER -45.086 17.399 -.323 -2.591 .011 -79.631 -10.540 .618 1.617

1

2

3

Table 10: All 100 Accounting Firms - Backward Stepwise Coefficientsa

Model


t Sig.

95.0% Confidence Interval for B Collinearity Statistics

23

The results of this study are summarized as follows:

R1: There is no significant relationship between the number of top managers and

the total revenue in the top 100 accounting firms.

R2: There is no significant relationship between the gender diversity of top

management and the total revenue in the top 100 accounting firms.

R3: For the top 50 accounting firms in the United States, there is a negative

relationship between their proportion of tax services revenue and their total revenue.


relationship between their proportion of tax services revenue and their total revenue.


relationship between their proportion of auditing services revenue and their total revenue.


relationship between their proportion of other services revenue and their total revenue.

R7: For the top 100 accounting firms in the United States, there is a positive

relationship between their proportion of management advisory services revenue and their

total revenue.

IMPLICATIONS AND RECOMMENDATIONS

Limitations

1. The inconsistency of data collection

As discussed above, this study draws its conclusions based on the available data

for those preferred top management positions in accounting firms. Because of the

inconsistency of the top management titles and the limitation of professionals’ public

information, the data collected and analyzed in this study contains different levels of

24

involvement in management. For instance, for those companies for which only partners’

information was listed on their website, the gender diversity of partners is used to

compare between the two groups. However, partners, as the owners of the partnership,

may not participate in directing operations and managing activities. On the other hand,

previous research also suggests that including more female directors on the board will

also increase age diversity indirectly, and adding young directors to the board to meet age

diversity will also bring in the possibility of insufficient experience (Ali, Ng, and Kulik,

2014). Therefore, partners’ indirect influences to the overall firm performance can be

reduced by the lower diversity in firms’ directors and management team, and the benefits

of gender diversity may also be offset by the negative influences of age diversity.

2. The oneness and instability of the variables

Previous research studied board diversity by analyzing the gender, nationality,

and age diversity of directors and how these factors affected firm performance. Because

of the lack of transparency for unpublicized financial services organizations, gender

diversity is the only variable considered in this study. The negligence of the publishing of

other factors for directors, such as age, nationality, educational background, and personal

experience, may lead to different results.

3. The deficiency of the sample size

This study is based on the top 100 accounting firms in the United States.

Although the firms are on the list of the top 100, the revenue range on this ranking is

huge, which runs from $33 million to $14,908 million. The revenue difference among

these 100 accounting firms should not be ignored, especially the unbridgeable difference

between the Big Four accounting firms and the smaller ones. Larger accounting firms

25

may contain a larger business scale, and they have greater resources to recruit and

appoint better-qualified employees and senior managers to their directors or principals

positions, which should indirectly lead to better firm performance and greater revenues.

4. The geographic limitation

This study is based on the ranking information collected by Accounting Today,

which contains the most successful accounting firms in the United States only. Rankings

in the U.S. are based on the specific U.S. economic environment, relevant regulations,

and market performance. The results and relationships found in this research may not be

applicable to the situations of accounting firms in other countries.

Implications

This research examines the relationship between gender diversity and revenue

performance in the accounting industry. Accounting firms nowadays are in the process of

transformation and are developing and expanding their advisory services. With the results

discussed above, accounting firms may benefit from shifting their financial resources and

human resources to their most profitable product – management advisory services. The

results indicate that the greater the proportion of the MAS revenue stream, the more total

revenue the accounting firm will generate. Therefore, accounting firms may consider

investing more time and effort into their MAS departments, and reducing the resources

that are currently being allocated to their tax departments.

Recommendations

Diversity topics in business research should be carried out and tracked on a long-

term basis. With the limitations discussed above, future researchers may try to collect

more specific or official data from these accounting firms to give a more accurate

26

analysis on the percentage of their female top managers. Besides, with more available

information, future researchers may also consider including more diversity variables,

such as age, educational background, nationality, etc. to produce broader and more

complete studies. Also, future scholars may conduct research based on foreign markets to

help business insiders and other researchers better understand diversity issues.

CONCLUSIONS

This research examines the potential relationships not only between the gender

diversity of top management and the total revenue performance in accounting firms, but

also between the proportion of different revenue streams and the total revenue of

accounting firms. The data for the gender diversity of top management is collected from

these accounting firms’ official websites. Although the top 100 accounting firms design

their websites and publish their gender diversity information online differently, sections

such as “Firm Leaderships,” “Our Team,” “Board of Directors” always lead the viewers

to the profiles of their top managers. The data for the percentages of the revenue streams

of these accounting firms is adopted from the “Top 100 Accounting Firms” rankings

provided by Accounting Today agency. The data is further classified into two groups and

a separate analysis was applied to each model. In analyzing the collected data, multiple

regression analysis and backward stepwise analysis were used to identify the independent

variables that have significant impact on firms’ revenue.

The results of this research suggest that there is no direct relationship between the

number and gender diversity of top manages in top 100 accounting firms in the United

States and their correlated total revenue. The results also suggest that there is a negative

relationship between the proportion of tax services and the total revenue in the top 50

27

accounting firms in the United States. For the top 100 accounting firms, there are

negative relationships between the proportion of tax services revenue and total revenue,

between the proportion of auditing services revenue and total revenue, and between the

proportion of other services revenue and total revenue. However, there is a positive

relationship between the proportion of MAS revenue and total revenue of the top 100

accounting firms.

28

APPENDIX 1Top 100 Accounting Firms Top Management Diversity and Their Revenue Streams

29

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