Article2008

Influence of Culture on Earnings Management: A Note

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Auditing, Earnings Management, Governance Accounting and Organizational Management Corporate Governance and Financial Management

Abstract

This article examines the influence of national culture on earnings management across a broad cross‐section of countries. In addition to examining the relation between culture and earnings management in general, two different types of earnings management are examined, namely, earnings smoothing and earnings discretion. Regression results indicate that, as expected, the cultural dimensions of uncertainty avoidance and individualism are significantly related to earnings management, even after controlling for investor protection and other legal institutional factors. Culture has a stronger relation with earnings smoothing than with earnings discretion, and cultural dimensions explain a greater percentage of the variation in aggregate earnings management and earnings smoothing than do investor protection variables. These findings suggest that there is a significant link between culture and cross‐national differences in earnings management, especially in the form of earnings smoothing.

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References

2002Culture's Consequences: Comparing Values, Behaviors, Institutions, and Organizations across Nations 1981Culture's Consequences: International Differences in Work-Related Values 1998Law and Finance 1993Cultures and Organizations: Software of the Mind.2003Earnings management and investor protection: an international comparison 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 2000The effect of international institutional factors on properties of accounting earnings 2006What Works in Securities Laws?

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