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

Collins, Daniel W.

Second Advisor

Hribar, Paul

First Committee Member

Collins, Daniel W.

Second Committee Member

Hribar, Paul

Third Committee Member

Mergenthaler, Richard D.

Fourth Committee Member

Asay, Scott

Fifth Committee Member

Qian, Yiming

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

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