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A cross-country study on the effects of national culture on earnings management
Sam Han, Singapore Management University
Tony Kang, Florida Atlantic University
Stephen Salter, University of Cincinnati
Yong Keun Yoo, Korea University
ABSTRACT. This study examines whether differences in national culture across countries explain the magnitude of discretion managers exercise in reporting earnings. Our evidence shows that earnings management decreases (increases) with uncertainty avoidance in weak (strong) investor protection countries. We further find that there is more earnings management in more individualistic societies than in collective societies, and that individualism has greater influence on earnings management in strong investor protection regimes where managers have contracting incentives to manage earnings. Our study extends prior literature by documenting that national culture is an important factor that explains corporate managers’ earnings management practices around the world.
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