The influence of national culture on the relationship between corporate governance and earnings management,

Abstract

The aim of the study was to analyze the influence of the dimensions of national culture on the relationship between corporate governance (CG) and earnings management (EM). There is evidence that in certain cultural contexts CG mechanisms appear to be ineffective in minimizing EM. Studies on governance and its influence on accounting information quality can help market participants make better decisions. It is important to include the cultural context in this relationship as it sheds light on an aspect that has hardly been explored in the research, which can improve the informational environment of organizations. In practical terms, the results may contribute to organizations paying more attention to the cultural influence of countries when implementing or improving their governance mechanisms, with the aim of making them more effective in aligning interests and monitoring behaviors in organizations. Moreover, market participants may require alterations in these mechanisms in more individualistic and indulgent cultural contexts. The sample was composed of 18,707 observations of companies located in 24 countries belonging to the G20 group, covering 2010 to 2017. The data were operationalized using a multiple linear regression, with robust standard errors and controls for sector and year fixed effects, using the propensity score matching (PSM) method. The premise that CG can minimize EM was confirmed in this research, except in individualistic and indulgent countries. In these cultural contexts, governance mechanisms tend to be ineffective in minimizing EM. These results contribute to the literature by highlighting that the culture of countries can impact the effectiveness of CG in mitigating opportunistic practices, which explains the ambiguous results of previous research.

Examining the Relationship Between National Culture and Earnings Management

“…The results from Haga et al (2019) and Keidann Soschinski et al (2021) provide preliminary evidence of a relationship between Long-Term Orientation and earnings management using firm-level data. Haga et al (2019) investigate the relationship between Long-term Orientation and management's choice of earnings management strategies and finds that in long-term orientation cultures, managers tend to rely on earnings management via accrual manipulations whereas in short-term orientation cultures there is greater reliance on real earnings management.…”

Regulatory accounting environment, cultural values and board efficacy in developing countries

“…Based on a review of previous studies (Gray, 1988;Vanasco et al, 1995;Shleifer and Vishny, 1997;Haniffa and Cooke, 2002;Licht et al, 2005;Li and Harrison, 2008a, b;Checherita and Rother, 2010;Hofstede et al, 2010;Boolaky and O'Leary, 2011, Boolaky et al, 2013, Boolaky and Cooper, 2015, Khlif, 2016Soschinski et al, 2021), this section is devoted to the presentation of the conceptual framework explaining the effect of SARS and cultural values on board efficacy of firms belonging to developing countries.…”

“…In such a framework, the interests of minority shareholders are protected and the manager is more inclined to apply the financial reporting standards and to comply with the provisions of the International Auditing Standards (ISAs), particularly in the presence of a renowned audit firm, the Big Four and the audit committee of directors' board. As a result, its discretionary power in accounting manipulations is reduced and the quality of information is improved (Levitt, 1998;Francis et al, 2003;Cohen et al, 2004;Licht et al, 2005;Boolaky et al, 2013;Nurunnabi, 2017;Liu and Wu, 2020;Soschinski et al, 2021;Boateng et al, 2021). According to transaction theory, corporate governance aims "to clarify the carrying out of the economic transactions by the efficacy of the chosen governance structures that have been adopted to carry out the transactions at hand" (Williamson, 1996).…”

“…The narrowness of financial markets characterized by low transaction volumes, the absence of an enforcement system that monitors the application of these principles, the concentration of family ownership, the weakness of minority shareholders' rights and the lack of transparency through a low level of communication constitute the main obstacles to the successful implementation of the corporate governance principles (Millar et al, 2005;Chan and Cheung, 2008;Okpara, 2011;Rafiee and Sarabdeen, 2012). These findings have prompted several researchers to conceptualize and experiment with different governance models that improve the quality of board control (Williamson, 2000;Boolaky and O'Leary, 2011;Boolaky et al, 2013;Boolaky and Cooper, 2015;De Villiers and Dimes, 2021;Soschinski et al, 2021).…”

Capacidades estatais e o resultado do enfrentamento das crises em saúde: o caso da Covid-19

“…Para isso, anteriormente é necessária a divisão das observações em dois grupos: tratado e controle. Esta metodologia é geralmente utilizada para análises de impacto de programas ou políticas públicas, mas recentemente vem sendo aplicada em estudos onde outras técnicas são utilizadas para determinação do grupo tratado, como corte em determinado percentil ou por meio de suporte teórico (CHIAVEGATTO FILHO et al, 2013;SOSCHINSKI et al, 2021). Tendo em vista a impossibilidade de separação dos grupos por meio da existência ou não das capacidades estatais, uma vez que estas podem existir em maior ou menor grau em cada localidade, procedeu-se a divisão entre grupo tratado e controle por meio da mediana de cada variável.…”