Cultural Determinants of Corporate Governance: A Multi-Country Study

Authors

DOI:

https://doi.org/10.18568/internext.v15i2.580

Keywords:

Corporate Governance, Earnings Management, Culture

Abstract

Purpose: The purpose of this study was to investigate if the culture of countries influences earnings management practices. Earnings management (EM) was chosen as a Corporate Governance mechanism.

Methodology: We selected the Earnings Management proxies from Leuz et al. (2003).  We adopted Hosftede´s cultural dimensions: power distance, individualism, uncertainty avoidance and long term orientation. The sample comprised companies listed in 2016 in the stock markets of Brazil, Argentina, Mexico, Chile, Colombia, Peru, and the United States. This work involved regression analysis to associate the dimensions of culture with the practice of EM of the firms.

Findings: The results showed a positive relationship between EM and power distance and between EM and uncertainty avoidance. On the other hand, the results showed a negative relationship between EM and individualism and between EM and long term orientation. Overall, our results suggest that culture influences firms’ earnings management.

Originality/value: Finance literature has had difficulty in assessing which variables can affect the development of CG in companies and its peculiarities in each country.  It is also difficult to find country-level variables that are common to all countries. This paper breaks new ground by developing culture indicators of the countries and aggregating legal and firm-level variables to these indicators to advance the understanding of CG in the firms and nations.

Theoretical and methodological contributions: studying culture at a multi-country level is important to improve the understanding of common aspects and the countries’ particularities that may affect the relationship between corporate governance and performance around the world.

Downloads

Download data is not yet available.

Author Biographies

Pedro Paulo Melo Arantes, Universidade Federal de Uberlândia - UFU

Mestre em Administração pela Universidade Federal de Uberlândia - UFU, Minas Gerais, Brasil.

Fernanda Maciel Peixoto, Universidade Federal de Uberlândia - UFU

Doutora em Administração pela Universidade Federal de Minas Gerais - UFMG, Minas Gerais, Brasil. Professora Adjunta IV da Faculdade de Gestão e Negócios da Universidade Federal de Uberlândia - UFU, Minas Gerais.

Luciana Carvalho, Universidade Federal de Uberlândia - UFU

Professor at FAGEN-UFU. PhD in Applied Economics (2013) from the Federal University of Uberlandia (UFU).

Fernanda Francielle de Oliveira Malaquias, Universidade Federal de Uberlândia UFU

Doutora em Engenharia Elétrica pela Universidade Federal de Uberlândia - UFU, Minas Gerais, Brasil. Professora da Faculdade de Gestão e Negócios da Universidade Federal de Uberlândia - UFU, Minas Gerais.

References

Astami, E. W., Rusmin, R., Hartadi, B. & Evans J. (2017). The role of audit quality and culture influence on earnings management in companies with excessive free cash flow: Evidence from the Asia-Pacific region. International Journal of Accounting & Information Management, 25(1), 21-42. https://doi.org/10.1108/IJAIM-05-2016-0059

Bao, S.R. & Lewellyn, K.B. (2017). Ownership structure and earnings management in emerging markets—An institutionalized agency perspective. International Business Review, 26(5), 828–838. https://doi.org/10.1016/j.ibusrev.2017.02.002

Barros, C. M. E., Soares, R., & Lima, G. (2013). A relação entre governança corporativa e gerenciamento de resultados em empresas brasileiras. Revista de Contabilidade e Organizações, 7(19), 27-39. https://doi.org/10.11606/rco.v7i19.55509

Black, B., de Carvalho, A., Khanna, V., Kim, W. & Yurtoglu, B. (2014). Methods for multicountry studies of corporate governance: Evidence from the BRIKT countries. Journal of Econometrics, 183(2), 230-240. https://doi.org/10.1016/j.jeconom.2014.05.013

Callen, J. L., Morel, M. & Richardson, G. (2011). Do culture and religion mitigate earnings management? Evidence from a cross-country analysis. International Journal of Disclosure and Governance, 8(2), 103-121. https://doi.org/10.1057/jdg.2010.31

Correia, L., Amaral, H. & Louvet, P. (2011). Um índice de avaliação da qualidade da GC no Brasil. Revista de Contabilidade e Finanças. 22(55), 45-63. https://doi.org/10.1590/s1519-70772011000100004

Correia, L., Amaral, H. & Louvet, P. (2017). Governança corporativa e earnings management em empresas negociadas na BM&FBOVESPA. Contabilidade Vista & Revista, 28(2), 1-29. https://doi.org/10.11606/rco.v8i21.63219

Desender, K. A., Castro, C. E. & De León, S. A. E. (2011). Earnings management and cultural values. American Journal of Economics and Sociology, 70(3), 639-670. https://doi.org/10.1111/j.1536-7150.2011.00786.x

Doidge, C., Andrewkarolyi, G. & Stulz, R. (2007). Why do countries matter so much for corporate governance?. Journal of Financial Economics, 86(1), 1-39. https://doi.org/10.1016/j.jfineco.2006.09.002

Doidge, C., Karolyi, G., Lins, K., Miller, D. & Stulz, R. (2005). Private benefits of control, ownership, and the cross-listing decision. ECGI - Finance Working Paper, 77. https://doi.org/10.2139/ssrn.668424

Doupnik, T.S. (2008). Influence of culture on earnings management: A note. Abacus, 44, 317-340. https://doi.org/10.1111/j.1467-6281.2008.00265.x

Fernandes, N. & Ferreira, M. (2007). The evolution of earnings management and firm valuation: A cross-country analysis. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.965636

Ferreira, M. Serra, F. & Pinto, C. (2014). Culture and Hofstede (1980) in international business studies: a bibliometric study in top management journals. REGE-Revista de Gestão, 21(3), 379-399.

Griffin, D., Guedhami, O., Kwok, C., Li, K. & Shao, L. (2014). National Culture, Corporate Governance Practices, and Firm Performance. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2400078

Griffin, D., Guedhami, O., Kwok, C., Li, K. & Shao, L. (2017). National culture: The missing country-level determinant of corporate governance. Journal of International Business Studies, 48(6), 740-762. https://doi.org/10.1057/s41267-017-0069-9

Guan, L., Pourjalali, H., Sengupta, P. & Teruya, J. (2005). Effect of cultural environment on earnings manipulation: A five Asia-Pacific country analysis. Multinational Business Review, 13(2), 23-41. https://doi.org/10.1108/1525383x200500007

Han, S., Kang, T., Salter, S. & Yoo, Y. K. (2010). A cross-country study on the effects of national culture on earnings management. Journal of International Business Studies, 41(1), 123-141. https://doi.org/10.1057/jibs.2008.78

Healy P. M., & Wahlen, J. M. A. (1999). Review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383. https://doi.org/10.2308/acch.1999.13.4.365

Hillier, D., Pindado, J., Queiroz, V. & Torre, C. (2010). The impact of country-level corporate governance on research and development. Journal of International Business Studies, 42(1), 76-98. https://doi.org/10.1057/jibs.2010.46

Hofstede, G. (1980). Culture’s consequences: International differences in work-related values. Sage Publications.

Hofstede, G. (2001). Culture’s consequences: Comparing values, behaviors, institutions, and organizations across nations (2th ed.). Sage Publications.

Holanda, A. P. (2012). Gerenciamento de resultados e estrutura de propriedade nas companhias de capital aberto no Brasil (Master dissertation). Retrieved from http://www.repositorio.ufc.br/handle/riufc/15074

IBGC, Instituto Brasileiro de GC (2015). Código das melhores práticas de governança corporativa. Instituto brasileiro de GC. (5th ed). https://www.ibgc.org.br/userfiles/files/Publicacoes/Publicacao-IBGCCodigo-CodigodasMelhoresPraticasdeGC-5aEdicao.pdf

Jensen, M. & Meckling, W. (1976). Theory of the firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405x(76)90026-x

Khlif, H. (2016). Hofstede’s cultural dimensions in accounting research: a review. Meditari Accountancy Research, 24(4), 545–573. https://doi.org/10.1108/MEDAR-02-2016-0041

Kirkman, B. L., Lowe, K. B. & Gibson, C. B. (2006). A quarter century of culture’s consequences: A review of empirical research incorporating Hofstede’s cultural values framework. Journal of International Business Studies, 37(3), 285-320. https://doi.org/10.1057/palgrave.jibs.8400202

Klapper, L. & Love, I. (2004). Corporate governance, investor protection, and performance in emerging markets. Journal of Corporate Finance, 10(5), 703-728. https://doi.org/10.1016/s0929-1199(03)00046-4

Kolozsvari, A. & Macedo, M. (2016). Análise da influência da presença da suavização de resultados sobre a persistência dos lucros no mercado brasileiro. Revista Contabilidade & Finanças, 27(72), 306-319. https://doi.org/10.1590/1808-057x201602610

Kumar, P. & Zattoni, A. (2013). How much do country-level or firm-level variables matter in corporate governance studies?. Corporate Governance: An International Review, 21(3), 199-200. https://doi.org/10.1111/corg.12025

La Porta, R. Lopez-de-Silanes, F. Shleifer, A. & Vishny, R. (1998). Law and finance. Journal of political economy, 106(6), 1113-1155. https://doi.org/10.1086/250042

Leuz, C., Nanda, D. & Wysocki, P. (2003). Earnings management and investor protection: an international comparison. Journal of Financial Economics, 69(3), 505-527. https://doi.org/10.1016/s0304-405x(03)00121-1

Licht, A., Goldschmidt, C. & Schwartz, S. (2005). Culture, law, and corporate governance. International Review of Law and Economics, 25(2), 229-255. https://doi.org/10.1016/j.irle.2005.06.005

Lopes, A. & Walker, M. (2008). Firm-Level Incentives and the Informativeness of Accounting Reports: An experiment in Brazil. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.1095781

Martinez, A. L. (2013). Gerenciamento de resultados no Brasil: Um survey da literatura. Brazilian Business Review. 10(4), 1-31. http://dx.doi.org/10.15728/bbr.2013.10.4.1

Minkov, M. (2017). A revision of Hofstede’s model of national culture: old evidence and new data from 56 countries, Cross Cultural & Strategic Management, 1(1), 2-33. https://doi.org/10.1108/CCSM-03-2017-0033

Nabar, S., & Boonlert-u-thai, K.K. (2007). Earnings management, investor protection and national culture. Journal of International Accounting Research, 6(2), 35-54. https://doi.org/10.2308/jiar.2007.6.2.35

Nezlobin, A., Sloan, R. & Zha Giedt, J. (2018). Measuring accruals quality: A theoretical and empirical evaluation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3301083

Paredes, A. A. P. & Wheatley C. (2017). The influence of culture on real earnings management. International Journal of Emerging Markets, 12(1), 38-57. https://doi.org/10.1108/ijoem-12-2014-0218

Peixoto, F. M., Amaral, H. F. & Correia L. F. (2014). Corporate governance, risk and capital cost: An analysis during crises in the first decade of the 21st century. Gestão & Regionalidade, 30(90), 67-88.

Pevzner, M., Xie, F. & Xin, X. (2015). When firms talk, do investors listen? The role of trust in stock market reactions to corporate earnings announcements. Journal of Financial Economics, 117(1), 190-223. https://doi.org/10.1016/j.jfineco.2013.08.004

Schipper, K. (1989). Commentary on Earnings Management. Accounting Horizons, 3(4), 91-102.

Soares, A. M., Farhangmehr, M. & Shoham, A. (2007). Hofstede’s dimensions of culture in international marketing studies. Journal of Business Research, 60(4), 277–284. https://doi.org/10.1016/j.jbusres.2006.10.018

Stahl, G. K., Miska ,C., Lee, H. & De Luque, M. S., (2017). The upside of cultural differences towards a more balanced treatment of culture in cross-cultural management research. Cross Cultural & Strategic Management, 24(1), 2-12. https://doi.org/10.1108/ccsm-11-2016-0191

Stulz, R. (2005). The limits of financial globalization, The Journal of Finance, 60(4), 1595-1638. https://doi.org/10.1111/j.1540-6261.2005.00775.x

Torres, D., Bruni, A. L., Rivera-Castro, M. A., & Martinez, A. L. (2010). Ownership and control structures, corporate governance and income smoothing in Brazil. Revista Contemporânea de Contabilidade, 1(1), 11-34. http://dx.doi.org/10.2139/ssrn.1651991

Volonté, C. (2014). Culture and corporate governance: The influence of language and religion in Switzerland. Management International Review, 55(1), 77-118. https://doi.org/10.1007/s11575-014-0216-5

Zhang, X., Liang, X. & Sun, H. (2013). Individualism–collectivism, private benefits of control, and earnings management: A cross-culture comparison. Journal of business ethics, 114 (4), 655-664. https://doi.org/10.1007/s10551-013-1711-5

Downloads

Published

2020-04-07

How to Cite

Arantes, P. P. M., Peixoto, F. M., Carvalho, L., & Malaquias, F. F. de O. (2020). Cultural Determinants of Corporate Governance: A Multi-Country Study. Internext - International Business and Management Review, 15(2), 56–71. https://doi.org/10.18568/internext.v15i2.580