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Do Culture and Religion Mitigate Earnings Management? Evidence from a Cross-Country AnalysisJeffrey L. CallenUniversity of Toronto - Rotman School of Management Mindy MorelUniversity of Toronto - Joseph L. Rotman School of Management Grant A. RichardsonCity University of Hong Kong - Department of Accountancy November 6, 2010 International Journal of Disclosure and Governance, Forthcoming Abstract: This study investigates whether culture in general and religion in particular mitigate earnings management. Using a cross-country data set, empirical tests based on rank regressions indicate that earnings management is unrelated to both religious affiliation and the degree of religiosity. In contrast, earnings management is found to be negatively related to the updated Hofstede (1980) cultural variable of individualism and positively related to uncertainty avoidance. Our results also indicate that the positive impact of the legal environment in mitigating earnings management, documented by Leuz et al. (2003), can no longer be demonstrated after controlling for culture.
Keywords: Earnings Management, Culture, Religion, Legal Environment JEL Classification: A13, F23, G39, K49, M41, O57 Accepted Paper SeriesDate posted: November 7, 2010Suggested CitationContact Information
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