DOI
10.17077/etd.kfyby9h8
Document Type
Dissertation
Date of Degree
Spring 2017
Degree Name
PhD (Doctor of Philosophy)
Degree In
Business Administration
First Advisor
Daniel W. Collins
Second Advisor
Paul Hribar
First Committee Member
Daniel W Collins
Second Committee Member
Paul Hribar
Third Committee Member
Richard D Mergenthaler
Fourth Committee Member
Scott Asay
Fifth Committee Member
Yiming Qian
Abstract
I examine whether cultural differences in trust towards others, materialism, and risk aversion lower financial statement comparability between countries that require International Financial Reporting Standards (“IFRS”). Evidence from various academic disciplines suggest that cultural beliefs and values affect individuals’ estimates and judgments and their consequent decisions, including economic and financial decisions. I posit that certain cultural beliefs and values also affect the estimates and judgments of corporate managers, resulting in inconsistent reporting decisions for given economic events and lower financial statement comparability. I find that two countries have lower comparability when there are greater cultural differences in trust towards others, materialism, and risk aversion. In cross-sectional tests, I find weak evidence that stronger enforcement of IFRS moderates the cultural effects on cross-country financial statement comparability. Stronger enforcement of regulations and law does not moderate the cultural effects. These findings suggest that having a strong IFRS, regulatory, or legal enforcement does not effectively moderate the impact of culture on cross-country financial statement comparability. A possible explanation is that cultural influence on financial reporting is also manifested through enforcement officials; in other words, those in charge of the enforcement are also subject to the same cultural beliefs and values as others involved in the reporting process, making moderation less likely.
Public Abstract
I examine whether managers in different countries apply the same accounting standards dissimilarly when they come from different cultural backgrounds. I look at the cultural dimensions of trust towards others, materialism, and risk aversion because previous studies find that these characteristics affect reporting outcomes within the US. Evidence from various academic disciplines suggest that cultural beliefs and values affect individuals’ estimates and judgments and their consequent decisions, including economic and financial decisions. I posit that certain cultural beliefs and values also affect the estimates and judgments of corporate managers, resulting in inconsistent reporting decisions for given economic events. The inconsistent reporting decisions can cause the same underlying economic events to be reported differently or different underlying economic events to be reported identically (i.e. even when two firms’ financial statements show the same profit, one firm may have a higher actual economic profit if the managers in that firm were more careful and thorough in reporting expenses). When the same numbers in the financial statements reflect different underlying economics or different numbers reflect the same underlying economics, it will be harder for users of financial statements to compare firms’ actual values (i.e. financial statements are less comparable, or have low comparability).
I find that firms from two countries have lower financial statement comparability when there are greater cultural differences in trust towards others, materialism, and risk aversion. I also find weak evidence that stronger enforcement of compliance with accounting rules mitigates the cultural effects on cross-country financial statement comparability. Stronger enforcement of regulations and law does not mitigate the cultural effects. These findings suggest that having a strong accounting compliance, regulatory, or legal enforcement does not effectively address the impact of culture on cross-country financial statement comparability. A possible explanation is that cultural influence on financial reporting is also manifested through enforcement officials; in other words, those in charge of the enforcement are also subject to the same cultural beliefs and values as others involved in the reporting process, making mitigation less likely.
Keywords
Financial Statement Comparability, IFRS, National Culture
Pages
viii, 75 pages
Bibliography
Includes bibliographical references (pages 41-46).
Copyright
Copyright © 2017 Byung Hun Chung
Recommended Citation
Chung, Byung Hun. "Do differences in national cultures affect cross-country financial statement comparability under IFRS?." PhD (Doctor of Philosophy) thesis, University of Iowa, 2017.
https://doi.org/10.17077/etd.kfyby9h8