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SYNOPSIS: With several institutions striving to harmonize international accounting rules across various sectors of the world, this study asks whether accounting is so culturally driven that harmonization is unattainable. The study also asks what, if anything, can change culture in relation to information disclosure behavior. Two hundred fifty-six corporate annual reports from France, Germany, Hong Kong, Japan, Norway, the United Kingdom and the United States were examined in order to determine whether cultural and market forces correlate with the level of investor-oriented disclosure. Tests also examined whether the culture-disclosure relationship is different for local versus international enterprises.
The primary findings show that the secretiveness of a culture does underlie disclosure practices of its business enterprises. There is evidence that marketforces also affect disclosure behavior: (1) higher levels of relative foreign sales relate to higher levels of disclosure, (2) lower debt ratios relate to higher disclosure, and (3) larger firms tend to disclose more information. Secondary findings show that local enterprises, but not international enterprises, disclose financial information commensurate with the secretiveness of their local culture. Enterprises operating in the global culture, on the other hand, appear to be disclosing higher levels of information than dictated by their local culture, perhaps in order to obtain resources at reasonable costs.
These findings may be useful to the International Organization of Securities Commissions in their effort to harmonize the financial reporting of companies listing on foreign stock exchanges. Although local culture permeates accounting disclosure, there is evidence that firms operating in the international marketplace may be willing to adhere to a mandated set of minimal accounting disclosures in order to compete for international resources. Firms already do disclose differently when operating in the global culture, thereby providing evidence of spontaneous "harmonization" effects of culture and market forces upon accounting disclosure behavior.
Motivation for this research originates from ongoing international accounting harmonization efforts. Such efforts attempt to alleviate alleged investors' decision-making problems via mandated international accounting standards. Proponents of harmonization contend that a mandatory setting of standards across countries is a reasonable approach for improving comparability among international financial statements. Such comparability, it is assumed, would increase protection of "foreign"1 investors and would thereby foster the expansion of international financial markets. (1) "Foreign" is relative to the disclosing...
