Impact of Board Characteristics on The Reliability of Financial Statements: Evidence from Central Public Sector Enterprises (CPSEs) In India

Abstract

This study examines how board composition and attributes affect the reliability and quality of financial reporting in India's Central Public Sector Enterprises (CPSEs). The study examines the relationship between board structure and the prevalence of financial statement errors. It does this by using data from 61 listed CPSEs over a five-year period (2016–17 to 2020–21). This study emphasises how important good board governance is to assuring high-quality financial reporting in government-owned enterprises. The findings show that frequent board meetings and independent board leadership are strongly linked to lower accounting, statutory, and audit-related errors. While larger boards are associated with fewer accounting errors, they are also associated with more governance failures at the director level. Although they are successful in lowering governance and statutory errors, independent directors surprisingly have a higher correlation with accounting errors, which raises questions about their practical involvement or expertise. Quorum levels and gender diversity have little to no impact on error mitigation. The findings highlight the need for strict enforcement of board effectiveness standards and provide empirical support for policy frameworks like the Companies Act of 2013 and SEBI's corporate governance standards. Enhancing transparency, protecting public resources, and supporting India's larger goals for institutional and economic development can all be achieved by strengthening governance practices in CPSEs through board accountability and diversity.