A cultural aspect, firms’ financial health and earnings management: evidence from the Asia-Pacific region

This research utilizes a fixed effect model to examine how uncertainty avoidance, as a cultural value of a nation, and the financial health of the firms impact earnings management practices in nine Asia-Pacific countries. This study reveals that companies operating in countries with higher uncertainty avoidance and those with better financial performance are less likely to manage earnings figures. Additionally, the study highlights that firms that are more prone to financial failure tend to exhibit a greater degree of earnings management. Our findings assist stakeholders in identifying a firm’s specific characteristic of financial performance as early warning signals for managing earnings figures and understanding the influence of national culture on international differences in financial reporting. This study contributes to the existing literature on agency theory and earnings management by highlighting the significance of national culture and a firm’s financial performance in explaining corporate managers’ discretionary practices in Asia Pacific countries. By examining the Asia Pacific region, which encompasses diverse cultures, this study provides a comprehensive understanding of how cultural factors shape agency relationships and influence earnings management practices. Furthermore, considering the financial performance of firms in the Asia Pacific provides insights into how managers use earnings management techniques to achieve financial goals, manipulate performance indicators, or align their interests with those of shareholders.