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Shades of Gray: An Empirical Examination of Gray’s Model of Culture and
Income Measurement Practices Using 20 F Data.
Phillip A Lewis,
Eastern Michigan University
Stephen B Salter, University of Cincinnati
ABSTRACT. Starting with Gray’s (1988) model linking societal culture and institutions with accounting values and practices, this study attempts to test the validity of the model across eight potential cultural and institutional values. It uses actual financial reporting practice data from approximately 1000 firms over five years synthesized to 75 data points across those 5 years. We find that while individualism continues to be a powerful force in predicting preferences for optimistic reporting, other factors such as tax rates and membership in the European Union can push countries without optimistic cultural predilections to move to optimism in income measurement. It finds in the end that Gray’s model continues to have good predictive ability but that its institutional portions have increasing value over its base cultural dimensions.
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