The Effects Of National Culture On Earnings Management.

A cross-country study on the effects of national

culture on earnings management

Abstract

This study hypothesizes and tests whether the degree to which managers

exercise earnings discretion relates to their value system (i.e., culture) as well as

the institutional features (i.e., legal environment) of their country. We find that

uncertainty avoidance and individualism dimensions of national culture explain

managers’ earnings discretion across countries, and that this association varies

with the strength of investor protection. This study extends prior literature by

documenting that both national culture and institutional structure are

important factors that explain corporate managers’ earnings discretion

practices around the world, and that the influences of these factors on

earnings discretion are conditional on each other.

Journal of International Business Studies (2010) 41, 123–141.

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