Board Characteristics and the Key Role of a High-Quality Labor in Enhancing Financial Reporting Quality

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Mawlood Salman Alatabi Abdalbaqir; Didar Hamzeh; Mansourfar Gholamreza

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Journal Paper

Paper Information

Journal: THE IRANIAN ACCOUNTING AND AUDITING REVIEW Year:2025 | Volume:32 | Issue:3 Page(s): 560-590

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Title

Board Characteristics and the Key Role of a High-Quality Labor in Enhancing Financial Reporting Quality

Author(s)

Mawlood Salman Alatabi Abdalbaqir | Didar Hamzeh | Mansourfar Gholamreza | Issue Writer Certificate

Keywords

Financial reporting quality

Labor quality

Board characteristics

Abstract

Objective Drawing upon motivation theory and human resource theory, this study suggests that a high-quality workforce not only fulfills its responsibilities effectively but is also incentivized by the benefits provided by companies to such employees. The distinctive characteristics of a high-quality workforce contribute to the enhancement of corporate reporting by improving internal controls, strengthening corporate governance, and ensuring more transparent and accurate financial disclosures. Recent studies validate these assertions, establishing a relationship between workforce quality and the quality of financial reporting. Moreover, board members can play an indirect role in enhancing workforce quality by selecting and recruiting employees with desirable traits. Within this context, the present research aims to investigate the mediating effect of workforce quality on the relationship between Board characteristics and Financial reporting quality. Methods This applied research adopts a descriptive-correlational approach to examine the relationships between the variables. The statistical sample, filtered based on specific criteria and constraints, consists of 105 companies listed on the Tehran Stock Exchange from 2013 to 2022. The hypotheses were tested using multivariate regression models. Results The analysis of the first three hypotheses reveals that Board characteristics, specifically independence and gender diversity, have a significant positive effect on Financial reporting quality. In contrast, board size exhibits a significant negative impact on Financial reporting quality. The findings from the fourth to sixth hypotheses confirm that Board characteristics such as independence, size, and gender diversity positively influence workforce quality. Furthermore, the results from the seventh to ninth hypotheses establish that workforce quality mediates the relationship between board independence, size, and gender diversity, and Financial reporting quality. In particular, workforce quality fully mediates the relationship between board size and Financial reporting quality, while it partially mediates the relationships involving board independence and gender diversity. Robustness testing further validated these results. Conclusion The research findings underscore the significant role of Board characteristics, i.e., independence, size, and gender diversity, in enhancing workforce quality and improving Financial reporting quality. A high-quality workforce mitigates the adverse effects of board size on Financial reporting quality and positively influences corporate reporting. Consequently, the study emphasizes the importance of fostering a high-quality workforce, encouraging companies to prioritize workforce development and employee well-being. These findings highlight that workforce quality not only improves financial reporting but also promotes corporate growth and generates broader societal benefits by enhancing organizational focus on employee quality.

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