Board gender diversity and audit timeliness: evidence on the annual report readability channel in an emerging market

Abstract

Purpose This study aims to examine whether board gender diversity influences audit report lag and whether annual report readability serves as a mediating mechanism in this relationship. Design/methodology/approach Using a panel data set of 620 firm-year observations of Egyptian publicly listed on the Egyptian Stock Exchange from 2018 to 2023, this paper uses an instrumental variable (IV) approach in the first stage to address endogeneity in board gender diversity. In the second stage, it uses (Baron and Kenny’s 1986) three-step mediation framework and the Sobel test to assess the causal pathways. Readability is measured primarily using the Läsbarhetsindex Index, with the Gunning Fog Index and the Automated Readability Index used for robustness checks. The Financial Regulatory Authority’s gender diversity mandate (Decree nos. 109 and 110 of 2021) serves as an exogenous instrument for board gender diversity. Findings Results of this study indicate that regulatory-driven increases in female board representation significantly reduce audit lag, with part of this effect mediated through enhanced readability. A 10-percentage-point increase in female directors cuts lag by about 0.44 day, roughly 0.01 day of which is mediated by improved readability. The IV results hold across multiple readability indices and diversity thresholds (Blau Index; ≥25% or ≥two-women rules). However, at token levels (20–39 % female directors), audit delay lengthens, indicating a critical-mass, nonlinear effect. Practical implications For practitioners and policymakers, the evidence suggests that promoting female participation on boards not only strengthens governance but also improves disclosure clarity and expedites audit processes. Regulators could consider mandating minimum female board representation and encourage clear, concise reporting standards to enhance corporate transparency and audit efficiency, especially in emerging markets. Originality/value To the best of the authors’ knowledge, this study is the first to establish a causal pathway linking board gender diversity to audit timeliness through the readability of financial disclosures. By introducing textual clarity as a mediating governance mechanism and leveraging Egypt’s 2022 regulatory reform as a quasi-natural experiment, the paper provides robust evidence relevant to researchers and policymakers in emerging markets concerned with board diversity, reporting quality, and audit efficiency.