This paper analyses the effect of Hofstede’s cultural dimensions on earnings management on 433 firms in 18 european countries, all reporting under IFRS. The results of multivariate regression reveal that only one cultural variable, namely Power Distance, has a significant effect on earnings management measured by discretionary accruals. In contrast, the scores for Individualism and Masculinity have no significant influence. These findings suggest that culture still has an influence on earnings management as suggested by previous studies, but is diminishing due to international accounting har-monization.
Table of Content
1. Introduction and Background
1.1 Hofstede’s cultural dimensions
1.2 Hypotheses
2. Research Design
2.1 Measurement of earnings management
2.2 Model specification
3. Sample Data and univariate analysis
3.1 Sample selection
3.2 Descriptive statistics
4. Results of the multivariate regression
4.1 Pooled sample
4.2 Results for each year
5. Conclusion
Research Objectives and Topics
This paper investigates the influence of national culture on earnings management practices among 433 firms across 18 European countries that report under IFRS, aiming to determine whether cultural impacts persist despite international accounting harmonization.
- Analysis of Hofstede’s cultural dimensions (Power Distance, Masculinity, Individualism) in relation to earnings management.
- Application of the modified Jones-Model to detect and measure discretionary accruals.
- Evaluation of the impact of international financial reporting standards on cultural bias in financial statements.
- Empirical assessment using multivariate regression models and control variables such as firm size, growth, and the Heritage index.
Excerpt from the Book
1.1 Hofstede’s cultural dimensions
The social psychologist Geert Hofstede defines culture as „the collective programming of the mind which distinguishes the members of one human group from another“10. In an extensive IBM employee survey across 72 countries and 116.000 questionnaires, he was able to identify four cultural variables that he labeled: Uncertainty Avoidance, Power Distance, Masculinity and Individualism.11
• Uncertainty Avoidance. Hofstede defines this value as „the extent to which the members of a culture feel threatened by uncertain or unknown situations“12. High uncertainty avoidance correlates with more regulation and the fear of changes in society.
• Power Distance. This dimension measures how countries handle social inequality and how minorities or less powerful citizens accept it. The higher the respective power distance index, the more inequality and hierarchy is accepted.13
• Masculinity. This cultural variable stands for the distinction of gender roles in society. Cultures with high masculinity emphasize gender differences and are driven by competition and achievement.14
• Individualism. This dimension describes the degree of interdependence of a society. In individualistic countries people are more self-sufficient, self-oriented and taking care of their immediate environment and family only.15
Summary of Chapters
1. Introduction and Background: Introduces the research topic, context of IFRS adoption, and the theoretical foundation of cultural dimensions.
2. Research Design: Describes the methodology for measuring earnings management via the modified Jones-Model and outlines the specific regression model used.
3. Sample Data and univariate analysis: Details the criteria for sample selection (433 firms) and presents descriptive statistics for the variables involved.
4. Results of the multivariate regression: Presents the regression findings for the pooled sample and year-by-year analysis to test the formulated hypotheses.
5. Conclusion: Summarizes the key findings regarding the impact of Power Distance on earnings management and identifies study limitations and future research directions.
Keywords
Earnings Management, IFRS, Hofstede, Culture, Power Distance, Masculinity, Individualism, Discretionary Accruals, Jones-Model, Financial Reporting, Accounting Harmonization, Corporate Governance, Empirical Research, Multivariate Regression, Heritage Index
Frequently Asked Questions
What is the core focus of this research paper?
The paper examines the relationship between national cultural values, based on Hofstede's framework, and the level of earnings management within firms reporting under IFRS in Europe.
Which cultural dimensions are considered central to the study?
The study primarily focuses on Power Distance, Masculinity, and Individualism, while also accounting for Uncertainty Avoidance in its initial model.
What is the primary goal of the research?
The goal is to determine if national culture continues to influence earnings management behavior despite the standardization brought about by IFRS adoption.
Which scientific methodology is employed?
The research uses a quantitative approach, specifically the modified Jones-Model to identify discretionary accruals, followed by a multivariate OLS regression analysis.
What topics are covered in the main section of the paper?
The main sections cover the research design, the selection of 433 European firms, descriptive statistics of cultural and financial variables, and regression analysis of pooled and annual data.
Which keywords best characterize this work?
Key terms include Earnings Management, IFRS, Hofstede's Cultural Dimensions, Discretionary Accruals, and multivariate regression analysis.
What specific effect did Power Distance have on earnings management?
The study found that a higher ranking in Power Distance is significantly associated with lower levels of earnings management, suggesting that respect for authority and hierarchy limits such practices.
How does this study compare to the work of Guan and Pourjalali?
While the study adopts the model used by Guan and Pourjalali, it introduces the Heritage index as a control variable and finds that cultural impacts appear to be diminishing under IFRS, in contrast to previous findings.
- Arbeit zitieren
- Stephan Küster (Autor:in), 2014, Cultural Impact on Earnings Management, München, GRIN Verlag, https://www.hausarbeiten.de/document/276790
