AUDITING: A JOURNAL OF PRACTICE & THEORY American Accounting Association Vol. 39, No. 1 DOI: 10.2308/ajpt-52560 February 2019 pp. 000–000 Do Gender Diversity Recommendations in Corporate Governance Codes Matter? Evidence from Audit Committees Nigar Sultana Curtin University Steven F. Cahan The University of Auckland Asheq Rahman Auckland University of Technology SUMMARY: Motivated by two opposing views, the limited supply view and the discrimination view, we examine the impact of gender diversity guidelines on the strength of the association between the presence of female audit committee members and audit quality. The limited supply view predicts that the effect of female audit committee members on audit quality would decrease after the guidelines were issued because they increased the demand for women directors without a commensurate increase in the supply of qualified women directors. The discrimination view predicts this relation would increase after the guidelines were issued since some firms would have abandoned their suboptimal hiring practices that favored men over better qualified women, resulting in higher quality firm-director matches as opportunities for women increase. Consistent with the limited supply view, we find that the positive association between audit committee gender diversity and audit quality weakened after gender diversity guidelines were introduced in Australia. JEL Classifications: G38; M42; M48. Data Availability: Data are available from the databases cited in the text. Keywords: audit committee; gender diversity; audit quality; gender diversity recommendations. I. INTRODUCTION G ender diversity in corporate boards continues to be a major issue for firms, the workforce, and policymakers worldwide. Between 2008 and 2015, 32 countries introduced boardroom gender diversity policies (Adams 2016 ). While researchers have tried to assess the impact of such policies, prior studies examining gender diversity regulations have focused on mandatory gender quotas (e.g., Ahern and Dittmar 2012; Bøhren and Staubo 2014; Eckbo, Nygaard, and Thorburn 2016; Ferreira, Ginglinger, Laguna, and Skalli 2018; Hinnerich and Jansson 2017 ). However, compared to mandatory quotas, gender diversity recommendations in corporate governance codes are far more common (Adams 2016 ). 1 As corporate governance code recommendations are voluntary and are a form of ‘‘soft’’ regulation (Klettner, We thank Gary S. Monroe (the editor) and three anonymous reviewers for their insights and constructive suggestions in improving the paper. We also thank Roger Simnett, Elizabeth Carson, Sarowar Hossain, Ellie Chapple, Ross Taplin, and Saurav Dutta for their valuable comments, and gratefully acknowledge the remarks from participants at the 2016 Accounting and Finance Association of Australia and New Zealand Annual Conference. Editor’s note: Accepted by Gary S. Monroe, under the Senior Editorship of Jeffrey R. Cohen. Submitted: December 2016 Accepted: May 2019 Published Online: September 2019 1 Twenty-six of the 32 countries mentioned by Adams (2016) use guidelines in corporate governance codes. The next most common method is quotas, which are used by eight countries. Some countries use multiple methods. See Terjesen, Aguilera, and Lorenz (2015) for a discussion of how gender quotas and guidelines evolve. Allen Press, Inc.  18 November 2019  4:56 pm Page 1 //titan/production/a/ajpt/live_jobs/ajpt-39/ajpt-39-01/ajpt-39-01-05/layouts/ajpt-39-01-05.3d 1