An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ramon P. Rodriguez Jr.
The University of Texas at El Paso

Abstract: This study attempts to discover the effects of culture on international earnings management by using the rigorous method developed over the past two decades in domestic earnings management research. The forward-looking model by Dechow et al. (2003) is applied to a sample of international firms to discover each firm’s level of earnings management through the use of discretionary accruals. These findings are used to measure the aggregate level of earnings management for each of thirty countries. The country-level results are used to discover the affect culture has on a firm’s level of earnings management. The results show that firms in countries with individualistic cultures are more likely to manage their earnings than firms in countries with collectivistic cultures. This could help explain the consistent empirical findings of earnings management in U.S. firms as the U.S. has a highly individualistic culture.

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