Do culture and religion mitigate earnings management? Evidence from a cross-country analysis

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 cultural variable of individualism and positively related to uncertainty avoidance. The results also indicate that the positive impact of the legal environment in mitigating earnings management, documented by Leuz, can no longer be demonstrated after controlling for culture.