The Role of National Culture in the Adoption of International Financial Reporting Standards

Abstract

We examine the relation between four cultural dimensions and countries’ decisions to adopt International Financial Reporting Standards (IFRS) around the world. Using a sample of 76 non-EU countries, we analyze IFRS adoption decisions during the period 2003-2014 to test the hypothesis that country differences in cultural traits can explain parts of the variation in countries’ decisions to adopt IFRS. We find that countries with higher levels of uncertainty avoidance are more likely to adopt IFRS. Additionally, they are more likely to commit to early adoption largely on a voluntary rather than mandatory basis. On the other hand, countries with higher values of masculinity are more likely to adopt IFRS early, but the extent (whether voluntary or mandatory adoption) of adoption is not significantly related to masculinity. The results, which are robust to a number of alternative explanations and specifications, suggest that differences in national culture had a significant role in countries’ reaction to the introduction of IFRS as a set of unified accounting standards targeting the harmonization of accounting standards adopted across different jurisdictions.

Keywords: Culture, IFRS, Institutions, macroeconomic factors.

JEL Classification: M41, M48