Does national culture influence management's accounting behaviour and strategy? – an empirical analysis of European IFRS adopters

Purpose: This study examines, in a European context, whether a management-induced International Financial Reporting Standards (IFRS) accounting strategy is affected by national culture. It analyses the association between management's accounting strategy and Hofstede's cultural dimensions of individualism and uncertainty avoidance, as well as institutional and firm-specific factors. Design/methodology/approach: Using hand-collected accounting decisions from 301 annual reports of firms from 14 European countries in 2017, a model is developed to identify two ordinally scaled accounting strategy variables, each representing the aggregated effect of the decisions on earnings and equity ratio. Afterwards, the effect of the cultural dimensions on these accounting-strategy variables is analysed by an ordered logistic regression. Findings: The results do not support an association between management's accounting strategy and national culture, complementing the previous critical literature on values-based theories of culture. However, there is evidence that national legal enforcement, disclosure requirements and firm size explain differences in management's accounting strategy across countries. Research limitations/implications: Using the cultural value dimensions of the Global Leadership and Organizational Behavior Effectiveness (GLOBE) project, the findings are robust and stable. However, the study is limited to a European data set and the sample year. Practical implications: This study contributes to the discussion on the transparency and comparability of IFRS accounting. The results imply that these issues are not affected by cultural differences but rather by differences in institutional and firm-specific factors. In order to bring about improvements, regulators should establish a uniform institutional setting, while the standard setter should reduce the number of implicit and explicit accounting choices embodied in the IFRS. Originality/value: The paper advances the understanding of cultural influences on management's IFRS accounting behaviour by providing an alternative to the existing accruals approach.