Effects of national culture on earnings quality of banks
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We examine the relation between four dimensions of national culture and earnings quality of banks using a sample of banks from 39 countries. Our main analysis, which focuses on the pre-financial crisis period 1993–2006, indicates that banks in high individualism, high masculinity, and low uncertainty avoidance societies manage earnings to just-meet-or-beat the prior year's earnings. In tests of income smoothing through loan loss provisions, we find that banks in high individualism, high power distance, and low uncertainty avoidance societies report smoother earnings. Our exploratory analysis of the effects of national culture on accounting outcomes during the financial crisis period 2007–2008 indicates that cultures that encourage higher risk-taking experienced more bank troubles in the form of larger losses or larger loan loss provisions.
Keywordsnational culture earnings management earnings quality financial crisis loan loss provisions just-meeting-or-beating earnings
We thank Robert Mathieu, Amin Mawani, Tharinda Ranasinghe, Lee Radebaugh (the editor), and the three anonymous reviewers for their valuable comments. Kanagaretnam and Lobo thank the Social Sciences and Humanities Research Council of Canada (SSHRC) for its financial support. Kanagaretnam also thanks the Certified Management Accountants (CMA) of Ontario for their financial support.
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