The Effect of Culture on Earnings Management: A COVID-19 Case Study
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2022-12-20
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en
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Abstract
Purpose: This thesis investigates the effect the COVID-19 pandemic has on the relationship
between Hofstede’s cultural dimensions and the magnitude of accrual-based earnings
management.
Design/methodology/approach: After the outbreak of the COVID-19 pandemic, numerous
companies experienced a significant reduction in demand. Consequently, the performance of
these companies were affected by this. This thesis investigates the effect of culture on earnings
management during the COVID-19 pandemic for listed companies domiciled in the European
Union. To this end, two ordinary least squares (OLS) regressions are run to analyze the effect of
Hofstede’s two cultural dimensions, uncertainty avoidance and individualism, on accrual-based
earnings management during the pre-pandemic period (2018-2019) and the pandemic period
(2020-2021).
Findings: This study finds that individualism and uncertainty avoidance are both positively
associated with the magnitude of accrual-based earnings management. Moreover, the study
concludes that the effect of cultural values during the pandemic is indifferent from the effect of
the cultural values individualism and uncertainty avoidance prior to the pandemic.
Keywords: Earnings Management, COVID-19 crisis, pandemic, Hofstede’s cultural dimensions
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Faculteit der Managementwetenschappen