spontaneous harmonization effects

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I 1996 American Accounting AIIsociationAccounti ll HorizonsVoL 10No 1March 1996pp 18-37 Spontaneous Harmonization Effects ofCulture and Market Forces onAccounting Disclosure PracticesMarilyn Taylor Zarzeski

Marilyn Taylor Zarzeski is Assistant Professor ofAccounting at the University ofCen-tral Florida.SYNOPSIS With several institutions striving to harmonize intemational accounting rules acrossvarious seetors of the world, this study asks whether accounting is so culturally driven that harmoni-zation 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 todetermine whether cultural and market forces correlate with the level of investor-oriented disclosure. Tests also examinad whether the culture-disclosure relationship is different for local versusinternational enterprises.The primary findings show that the secretiveness of a culture does undertie disclosure practicesof its business enterprises. There is evidence that m rketforces also affect disclosure behavior: (1)higher levels of relative foreign sales relate to higher levels of disclosure, (2) lower debt ratios relateto higher disclosure and (3) larger firms tend to disclose more information. Secondary findingsshow that local enterprises but not international enterprises, disclose financial information com-mensurate 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 localculture, perhaps in order to obtain resources at reasonable costs.These findings may be useful to the Intemational Organization of Securities Commissions intheir effort to harmonize the financial reporting of companies listing on foreign stock exchanges.Although local culture permeates accounting disclosure, there is evidence that firms oper ting nthe intem tion l m rketpl ce may be willing to adhere to a mandated set of minimal accountingdisclosures in order to compete for international resources. Firms already do disclose differentlywhen operating in the global culture, thereby providing evidence of spontaneous harmonizationeffects of culture and market forces upon accounting disclosure behavior.Data Availability Data for this study were taken from company annual reports. A list of samplefirms is available from the author upon request.

Motivation for this research origina esfrom ongoing inte rnational accounting harmonization efforts. Such efforts attempt to alleviate alleged investors' decision-making problems via mandated international accountingstandards. Proponents ofharmonization contend that a mandatory setting of standardsacross countries is a reasonable approach forimproving comparability among internationalfinancial statements. Such comparability, it isassumed, would increase protection of "for-

eign"l investors and would thereby foster theexpansion of international financia markets.I "Foreign" is relative t the disclosing company.

This paper received the Association of Char ted Accountanta in the United States 1995 Education Award foraccounting manuscripts.The author would like t thank her dissertation com-mittee (Chairman Bipin Ajinkya, Anwer Ahmed, RoyCrum and Ron Ward) for their invaluable guidance, twoanonymous reviewers, Jeannie Johnson, Robert Lanonand Cindy Parks for their very helpful comments.

Submitted uly 1995Accepted December 1995


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Opponents of accounting harmonizationargue that enterprises competing in international markets will spontaneously disclose fi-nancial information in order to be competitive.Regulated disclosures, therefore, are unnecessary. AdditionaIly, regulated internationalharmonization may not be possible in a business world of cultural, legal, poltical and eco-nomic differences. Financial reporting systemshave evolved over time, and each country'sreporting system serves the needs of a distinctgroup of constituents such as public investors,private creditors or governments.Several international organizations responsible for the establishment of accountingguidelnes are attempting to harmonize accounting standards aeross different segmentsof the world. Progress of the InternationalAccounting Standards Committee (IASC) isevident by their 32 Intemational AccountingStandards (lASs). Although there is no requirement for countries to adhere to the IASs,there are growing numbers of companies reporting in compliance with them. Progresswith the European Union (EU) standards hasoccurred over several years, but importantmeasurement and disclosure issues were resolved by permitting two alternative methodsrather than only one. These options reduce thecomparability aeross EU financial statements.The Intemational Organization of Securities Commissions (lOSCO) is attempting tofind an acceptable financial reporting systemfor enterprises that lis t securities on a foreignexchange. There is a possibility that IOSCOwiIl recommend the IASC standards for companies listing on foreign exchanges. Securitiesregulators across the world are seeking relevant nd comparable disclosures that mayimprove economic resource allocations. Forfinancial information to be comparable, thereare actually three aspects that must be addressed: 1) is the s me mount of information presented (i.e., disclosure issues); 2) isthe s me in{ormation presented (i.e., recognition and measurement issues); and 3) is the.information equally reliable? (i.e., auditissues).This research addresses the first questionby examining disclosure levels. It examines

whether enterprises dependent upon international markets for major resources arespontaneously providing levels offinancial disclosure sought by investors. This research alsoproposes that local enterprises, but not international enterprises, disclose financial information commensurate with their homeculture. If such evidence exists, then the legitimacy of forced accounting harmonizat ionfor ll firms across countries is questionable.However, firms operating in the internationalmarketplace may be willing to adhere to amandated set of minimal accounting disclosures in order to compete for intemationalresources. This paper attempts to answerSalter and Niswander's (1995, 394) question:What, if anything, can change culture?The remainder of this paper is organizedas follows. The next three sections set thebackground: the evolution of accounting, theculture-market influences upon informationdisclosure, and an overview of prior accounting disclosure studies. The hypotheses andmodel development are then described, fol-lowed by the research results. The last section ofthe paper summarizes the findings andtheir implications.EVOLUTION O CCOUNTINGBefore there is agreement on articulatedrules, the implied rules of conduct over timeare followed (Hayek 1967). Accounting prac-tices (implied rules) ofien become accounting

st nd rds articulated rules). Accountingpractices evolve differently across countriesbecause business relationships evolve differently. Business relat ionships differ because ofenvironmental stimuli, e.g., polities, law, eco-nomics and culture. If standards come frompractices (voluntary) and practices come fromculture (through business relationships, gov-ernment, capital markets, financial intermediaries and the accounting profession), thenaccounting standards appear to be culture-driven through m rket {orcesA culture grows and develops in responseto environmental stimuli, similar to thegrowth offirms' accounting disclosure behaviors and countries' accounting disclosure standards. There are several classification stud-

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ies that show evidence of environmental patterns associated with national systems of accounting (e.g., Mueller 1967; Radebaugh 1975;Belkaoui 1983; Salter and Niswander 1995).Gray (1985) explains that enterprises in eco-nomically developed countries are probablymore candid so that business performance canbe evaluated by society. More secretive countries,2 though, may have developed businessand financing relationships that encouragedirect, private interactions. Such countriesmay have developed financial reporting systems not intended mainly for outside investorso Salter and Niswander (1995) find evidence that cultural secrecy rela tes negativelyto the development offinancial markets.'lb understand the development of nter-national financial markets and the feasibilityofinternational accounting standards, we nowview the culture-market-standards paradigmin the global environment. Perhaps the harmonization issue can be more readily untangled by thinking ofthe cultural differencesas culture driven through market {orces Theglobal market isjust a different culture thanthe one the firm faces at home. When a firmdoes business in the global market, it is operating in a different culture and thereforemay need to have different practices. Higherlevels of financial disc10sures may be necessary for international survival because disclosure of quality operations should result inlower resource costs. When enterprises frommore secretive countries perceive economicgain from increasing their financial disclosures, cu ltural borrowing may occur. The culture being borrowed will be a global marketculture, rather than a specific countryculture.Hayek (1988) believes that individualsadapt their activities to events that occur in amarket system. He advances Menger's (1883)spontaneous ordering of the market in whichpractices and institutions arise from activitiesof numerous individuals using economic information in pursuit oftheir own interests. Inother words, disc10sure practices in the international marketplace arise spontaneously.The question remains whether institutional-

Accounting Horizons I March 1996

ized disclosure standards are possiblein a glo-bal culture. ls a competitive internationalmarketplace a strong enough inducement forcountries (or international firms) to borrow theglobal culture and agree upon internationalaccounting standards?Bloom and Naciri (1989) note that the ninecountries in their study show evidence tbatlocal standard setting lags behind environmental and cultural changes. Perhaps international standard setting also lags behindenvironmental and cultural changes. If thecurrent s tudy finds evidence of global culturalborrowing,3 then nternational accountingstandard setting may be feasible at least forfirms operating in the global market .

INFORMATION DISCLOSURE:CULTURE-DRIVEN THROUGHMARKET FORCESAlthough it is difficult to separate the impact of cultural forces and market forces onaccounting disc10sure practices, this sectionexamines prior research related to theseforces. First is a discussion of Gray's (1988)theory of cultural influence on accounting.Second, there is an overview of multinationals and competitive strategy, nationally andinternationally. Third, resource dependencetheory helps to explain the behavior of firmsin a competitive environment.Gray's Theory of Cultural Influence onAccountingAs discussed earlier, culture underlies thebusiness activities of a nation. Utilizing c-counting as a s ubculture Gray (1988) proposes several hypotheses that relateHofstede's (1980) four cultural dimensions(individualism-collectivism, uncertaintyavoidance, masculinity-femininity and powerdistance) to accounting systems. Gray (1988)develops a framework for analyzing the de-

2 Information diselosure, denoting openness of a society, relates to the degree of secretiveness of a culture;3 Such evidence ineludes: (a) firms in the internationalmarketplace providing higher levels ofdisclosure practices than their domestic counterparts and (b) international firms disclosing similarly across firms.

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velopment of accounting systems by using accountants' vaIue systems, purported to be derived from societal values. The accountingvaIues used by Gray (1988) inelude professionalism versus statutory control, uniformity versus flexibility, conservatism versus optimism,and secrecy versus transparency. The lastvalue grouping forms the foundation for thecurrent study because information disclosuremay depend upon the level of secrecy in eachculture.

Perera (1989) uses Gray's theory (1988) ina descriptive analys is of different cultural environments and their accounting systems.Perera concludes that theAnglo-American accounting model espoused by the IASC is likelyto encounter relevance problems in Continental Europe and other countries with differentculture-driven markets from the UnitedStates and the United Kingdom. GrayandVint (1994) also test Gray's theory (1988) byusing the database ofdisclosure practices froma 1984 project conducted by the University ofGlasgow and Deloitte Haskins and Sells. With27 countries in a univariate regression analysis, the researchers find significant correlations between each cultural dimension and theaverage accounting disclosure score of eachcountry's enterprises .4 A multiv ri te regression analysis with a four cultural variablesshows individualism positively related to accounting disclosure and uncertainty avoidance, negatively related to accounting disdosure. Gray's (1988) culture-accounting theoryalso has been shown to explain financial reporting practices, with disclosures derived bythe Center for International Financia Analysis and Research (Salter and Niswander 1995).The current study uses Gray s (1988)theory of cultural influence upon accountingdisclosures. Gray's theory explains how culture affects the development ofbusinesses andtheir institutions, including accounting systems. The current study examines the cultureaccounting rela tionship in a resource dependence context, specifically in a competitiveglobal market contexto This study questionswhether innovation in disclosure occurs in thefinancial reporting behavior of enterprises

dependent on foreign resources. In particular,do enterprises in the internationaI marketplace disclose contrary to the secretiveness oftheir home culture? r so, then what causessuch "contrary" behavior?Multinationa1s and CompetitiveStrategyThere are increasing pressures for higherlevels of accountability from multinationalenterprises (Grayet al. 1981). Such pressuresresuI t not only from multinational firms' significant power over resources, but aIso fromthe risk-reducing incentive offirms to displaythemselves as quality firms. Competition involves the revelation and exchange of knowledge or information about quality (Alchianand Demsetz 1972).

In an analytical capital m rket scenaro,Verrecchia (1983) shows that traders are unable to interpret withheld information of afirm as good or bad, in comparison to the firm'scompetitors. The traders are likely to discountthe value of the firm, thereby encouragingthorough disclosure practices by the firmo Ina product m rket scenaro, Darrough andStoughton (1990) use game theory to showthat competition in the product market encourages voluntary disclosure because disclosure helps the financial market to value theentrenched firm more accurately.5'lb compete successfullywith firms that possess knowledge oflocal business conditions andtraditions, the multinational firm must holdsome form of competitive advantage. Porter(1986) points out that competitive advantage ofa firm can only e understood by analyzing discrete activities and not the firm as a whole. Hisexamples of discrete activities include account-ing activities e.g., disclosures, that are physically distinct and readily observed.

4 As hypothesized, individualism and masculinity arepositively related to accounting discl08ure, while uncertainty avoidance and power distance a re negativelyrelated to accounting discl08ure.5 The cited study is applicable to the sample o entrenched internation al firms in the current study because the sample firms are not new to the international marketplace.


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Firms adopting a national competitive strategy may either maintain stable local sources ofcapital, materials, labor and customers, or ob-tain resources via changes n thei r organizationstructure, e.g., vertical or horizontal integration.Williamson (1975) explains how firms form hierarchies of suppliers and wholesalers in orderto lower transaction costs. Such hierarchies encourage private sharing offinancial information,thereby decreasing information demands fromoutsiders.Firms adopting an international competi

tive strategy are operating in a global culturethat depends upon global resources. To obtainforeign customers and enhance public image,firms may choose to disclose at least as muchas their competitors, which may or may notbe more than they are already disclosing intheir home country6 (Lundblad 1991). 'lb obtain foreign capital at lower costs, firms maylikewise provide disclosures similar to theircompetitors in order to demonstrate the quality o earnings and assets (Choi 1973;Diamond and Verrecchia 1991). For further explanation of the resource-disclosure relationship, next is an explanation of resource dependence theory.Resource ependenceResource dependence theory is an explanation ohow firms manage uncertainty surrounding business transactions (Pfeffer andSalancik 1978). Firms develop and modifypractices to solve problems that arise as theyattempt to realize value from business trans-actions. International activity involves addedrisks and uncertainties or business firms andthe parties that do business with them. In order to obtain resources at reasonable costs,firms competing for customers, labor, materials and capital in a global market are likelyto exhibit higher levels of investor-orienteddisclosures than exhibited domestically. Firmsanticipate that increased disclosure willloweruncertainty about their operations. The current study examines the degree to which dependence on local versus international resource providers affects accounting disclosurebehavior of resource seekers, i.e., businessfirms.

Account ing Horizons I March 996

CCOUNTING DISCLOSURESTUDIESThere has been research interest in accounting disclosure behavior in annual reportssince, at least, the 1960s. Disclosure research

pertinent to the current study can be dividedinto two categories. The first category ineludesaccounting diselosure questionnaires sent tovarious parties within the financial reportingprocess. Using the relevance ranking of disclosure items, researchers developed accounting diselosure indices or performed statisticaltests of disclosure rankings Cerf 1961;Singhv and Desai 1971; Buzby 1974; Chandra1974; Baker et al. 1977; Frth 1978;McKinnon 1984). These studies show thatuser groups assess the value offinancial disclosures differently. Therefore, it is importantfor the current study about investor-orienteddiselosures to inelude those items that investors deem important .The second category of relevant disclosurestudies involves the use o a disc10sure indexto measure required, voluntary or total accounting disclosure in annual reports. Withdiselosure as the dependent variable, correlations are investigated not only for U S. f rIIlsbut also for foreign firms (Singhvi 1968; Choi1973; Barrett 1976; Firth 1979; McNally et al.1982; Cooke 1991). Regression studes o India, Japan, Mexico, New Zealand and the U.K.show that firm size is related positively to thelevel of accounting diselosure. Other variablesrelated to disclosure are stock market listingand industry sector (manufacturing). Choi(1973) found evidence of increased diselosurewhen firms enter the Eurobond market.Barrett (1976) found that the annual reportdisclosures of U.S. and U.K. companies differed from those in France, Germany, Japan,Netherlands and Sweden. Salter andNiswander (1995) used Bavishi's (1991) tabulated disclosure scores for the world's leading1,000 companies and found that cultural se-

6 Even though the U.S. and U.K. f inns faee high disclosure standards domestieally, they can inerease theirtotal dsclo8ure by providing more nonfinancial nformation such as employee data, produetion and baeklog infonnat on.

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crecy is negatively related and market capitalization is positively related to level of annual report disclosure.Also important here is an empirical studyof accounting disclosure requirements7 across34 stock exchanges (Adhikari and Tondkar1992). From their English-Ianguage disc1o-sure-preference survey offinancial executivesacross 41 countries, the researchers developa disclosure scoring method and use it to measure each country s dependent variable (required disclosure for listing on stock exchange). Because this scoring method is recent, is based upon investors opinions acrosscountries, and encompasses several items notinc1uded in other scoring methods, I combineit with prior methods for the measure of thedependent variable in the current study. Further explanation is provided below in the discussion of the dependent variable.

MO EL EVELOPMENTIn order to link culture and market forcesto investor-oriented disclosure practices of

enterprises across countries, I develop the International Disc10sure Model. The marketforces are relative foreign sales, debt ratio andtotal assets,8 while the cultural forces are uncertainty avoidance, individualism-co11ectivism, masculinity-femininity and power distance (Hofstede 1980). The rationale for eachindependent variable and its relationship toaccounting disclosure follows the pictorial display ofthe model in figure 1 Later, the International Dependence Model, a variation oftheInternational Disc10sure Model, examineswhether the culture-accounting relationshipis different when businesses operate in theinternational marketplace.

evelopment of Research HypothesesThis section presents the InternationalDisclosure Model and the International Dependence Model.International Disclo ure Modelependent Variable Investor-orienteddisclosure practices the dependent variable,includes both required and voluntary disclosure items in English-version annual reports

from seven countries. Other internationalcomparative studies have followed the approach that I have followed (see, for example,Barrett 1976, Choi 1973). lb develop a com-prehensive scoring method, 1 use a disclosureitems in the fOllowing accounting disclosurestudies: Adhikari and lbndkar (1992), Barrett(1976), Choi (1973) and Singhvi and Desai(1971). Table 1 provides the disclosure itemsand their one-to-four weightings, with a fourindicating highest importance to analysts .9 Itis important to use investor-oriented disclosures for the dependent variable because investors are typically the main users of annualreports. Annual reporta appear to be the intended outlet of most accounting harmonization efforts.Each company s weighted dependent variable is calculated as follows. f he disclosureitem appears in the annual report, then theweighting is added to the total disclosurescore. After scoring the entire annual report,the total disclosure score is divided by the total possible score; this percentage becomes thedependent variable. The unweighted score iscalculated similarly, except that each disclosure item receives one point rather than aweighted number.

Independent Variables Three marketforces and four cultural forces comprise theindependent variables of the InternationalDisclosure Model. The plus or minus in theparentheses indicates the hypothesized relationship between disclosure and each independent variable. Figure 2 provides the Model inequation format and summarizes the measurement of each variable. Each hypothesisbelow is stated in the alternate form, rather

7 An examination of country disclosure requirementsprovides a view different from the enterprise disclosure studies discussed above.s lbtal assets acta more as a control variable than amarket variable.9 Fint, the Adhikari and lbndkar (1992) one-to-fiverankings are converted to one-to-four rankings in order to be comparable t o the other three studies. Ifavailable in the Adhikari and lbndkar (1992) study,1 use their ranking because it is most recent and glo-bal. Then, for the remaining discl08ure itema, 1 usethe average of he other researchers acores or just thescore itaelf ir only one resear cher used the disclosureitem.

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FIGURE 1Development of International Disclosure ModelResource Providers Independent Variables Dependent Variable

r - - - - - - - - - - - - - - -MARKET FORCES_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ JProduct Markets 1 Customers Foreign Sales I

I Firm Size ICapital Markets I Debt Ratio I INVESTOR-

ORIENTEDDISCLOSUREPRACTICESr - - - - - - - - - - - - - - -CULTURAL FORCES_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ J

Uncertain ty AvoidanceIndividualism-CollectivismMasculinity-FemininityPower Distance

than the null form that the study hopes to reject. The measures for the market variablesare in the corporate annual reporta, and themeasures for the cultural variables are inHofstede s study (1980).FSALES (+), foreign sales divided by total sales, is a relative value. Foreign sales isan international market force that is expectedt influence accounting disclosure behavior ofbusiness enterprises. If companies have moreforeign sales, they are likely to have more for-eign operations, labor and capital. lb obtainsuch resources at reasonable costs, it is important that companies share informationabout the quality of their operations.Saudagaran (1988) found a significant positive relationship between the percentage of afirm s foreign sales to total sales and the listing of its shares in foreign markets.Hypothesis 1: Companies with higher Ievelsof foreign sales to total sales are likely toprovide higher levels of investor-orienteddisclosures.

DEBTRATIO(-), total debt divided by total assets, is both a local and international

market force because debt structures varywithin countries and across countries (Sekelyand Collins 1988). If companies have higherdebt ratios, it is likely that they share moreprivate information with their creditcrs. Com-panies with higher debt ratios, on the average, probably exist in countries with high uncertainty avoidance and likely have developedbanking relationships and interlocking corporate ownerships as alternate capital sourcesto public ownership. Conversely, companieswith lower debt have a higher percentage ofstock ownership, which could encourage investor demand for information.Hypotbesis 2: Companies with lower debtratios are expected to have higher levelsof investor-oriented disclosures.

FIRMSIZE(+), the total assets of a company, is expected to rela te positively to disclosure because larger companies, on the average, are likely to have higher public demandsfor information. Larger companies are oftenmore internationally dependent on foreignresources. s mentioned earlier, numerousstudies show firm size to be positively related

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TABLE 1Disclosure Weights for Comprehensive Scoring MethodDIS LOSURE ITEMS Weight DIS WSURE ITEMS Weight

GENERALINFORMATION FINANCIAL INFORMATIONCompany objectives 2.95 Segment earnings-products and cust. 3.05PP E function, location, size 2.6 Segment eamings-geographic 3.05Products, including new 2.95 Segment revenue-products and cust. 2.47R D informationlprogress 3 Segmentrevenue-geographic 3.47R D info/progress, incl. expense 3.5 Discussion of company results 3.1Employee information 3.3 Discussion of signif. accounting polices 3Capital expenditures-current 3.15 Allowance for doubtful accounts 3.3-Capital expenditures-planned 3.15 Inventory breakdown 1.67Dependent on major customers 3 Order backlog information 1Industry trendslposition 3.2 Tangible asset breakdown-PP E 3Orig.cost, accum.depm, depr exp. 2INFORMATION ABOUT MANAGEMENT Current market value of market. seco 2.5Company director information 2.7 Plant capacity usedloutput 3Management information 2.7 Changing price levels information 3Deferred taxes-expensed vs. paid 1.75COMPANY'S CAPITAL Income statement-single 3Stock details 3.2 Income statement-comparative 4Number and types of shareholders 2.5 Income statement-relevant subclasses 1Large shareholders-name size 2.95 Distribution of Income 1Substantial interest shareholders 3.3 Balance sheet-single 3Options,warrants, conversion rights 3.1 Balance sheet-comparative 4Historical price range trading volume 2.7 Balance sheet-relevant subclasses 1Co. subs-loan capital detaiVprin. int. 3.65 Eamed surplus-reconciliation 3.17Sales or gross margin only 1.5FINANCIAL INFORMATION Both sales and gross margin 3Hist. of operating fin. data-5 years 2.1 Past pension fund liability 2.1-Hist. of operating fin. data-9 years 2.9 Advertising expense 1Audited financial statements 3.75 Contingent liabilities 1Statement of cash flows--comparative 3.3Statement of cash flows-single 3 R E E N T D E V E L O P M E N T ~ R O S P E T SDividend record and future policy 3.3 Major factors to influence next year 3.4Consol. uncon. subs, incl. consol.stmts 3.35 Profit Forecast 3.4Investments not subs-information 2.85 Cash projections for 1 to 5 years 3.3-

TOTAL NUMBER OF DISCLOSURES 52 *- =Disclosure item deemed important by creditors (Chow and Wong-Boren 1987).* = Although the re a re 58 rows of disclosure items, only 52 are unique to a firmoto accounting disclosure within a country;therefore, firm size10 is considered more as acontrol variable than a market variable. Thisstudy examines whether larger companiesacross several countries are more likely to

10 The natural log transformation of total assets isdeemed appropriate for this study because the datashows a positive skewness, indicating nonlinearity.Note tbat tbe nontransformed raw data for firm sizehas no heteroscedasticity problem; the coefficients aresignificant but in hundred thousandths.

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26 Accounting HorizonslMarch 1996

FIGURE 2International Disclosure ModelDirectional Relationships and Measurement of VariablesPanel k Directional Relationships

DISC = bo+ b1FSALES% - b2DEBTRATIO + b3FIRMSIZE- b4UNCERc + bsINDIVc + bsMASCUc - b,POWERc + EPanel B: Meuurement ofVariables

O i ~ D d m t a r i a b l ~DISC = Total enterprise disclosure/total possible disclosure points

Ma.rket ForcesFSALES%DEBTRATIO == Foreign sales/total salesTotal debt/total asset sFIRMSIZE = Naturallog oftotal assets ($U.S. millions)CultuIal E 2I lilfl

UNCERlINDIVMASCUPOWER

====Uncertain ty avoidanceIndividualism versus CollectivismMasculinity versus FemininityPower distance

Subscripts: i =Enterprise-specific c =Country-specific1 For each of the four cultural dimensions of the Hofstede (1980) study, the country vaIues range frorn 6

to 112. A higher vaIue indicates more of that particular cultural trait.have higher levels of investor orienteddisc1osures.Bypothesis 3: Larger companies are morelikely to have higher levels ofinvestor-oriented disc1osures.

The following our cultural orces are measured as continuous variables, ranging from6 to 112. These measures were developed byHofstede (1980)11 in a multidimensional scaIing ofwork-related surveys from over 160,000IBM empIoyees aeross 64 countries. This studyuses Gray's (1988) secrecy/transparency hypotheses that relate each cultural dimensionto information disc1osure. Companies of moresecretive countries (with more private meansof obtaining resources) are more likely to disclose less public information. As hypothesized,Salter and Niswander (1995) found a negative relationship between secrecy and disclosure practices, with uncertainty avoidanceand individualism being significantly relatedto disclosure.12

UNCER -), uncertaintyavoidance, one ofHofstede's (1980) four cultural dimensions,signifies the degree to whieh a society can aecept ambiguity. Companies in strong uncertainty avoidance eountries are more likely todisc10se less information public1y becausemore certain13 relationships exist, e.g., bankfinancing and c1osely-held company owner- Although this study is dated 1980, it is applicable totoday's environment because country culture changesslowly. Although Hofstede's work has enhanced ourawareness o global cultural characteristics, it s important to remember that environment changes withinand outside a company are continually changing corporate culture at a pace more rapid than country culture changes.12 Salter and Niswander (1995) use secrecy rather thandisclosure or their dependent variable. The disclosurescores are multiplied by miDUS ODe in order to hypothesize, or example, that higher individualism relates

to lower secrecy. Therefore, their expected directionalrelatioDships are opposite o the current study'shypotheses.13 Certain refers to direct relationships that are moreprvate and predictable.

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ship. On the contrary, societies exhibitingweak uncertainty avoidance are more likelyto have developed business relationships andinstitutions that do not necessarily reduceuncertainties. Such societies are more likelyto have companies with widely-held ownershipand capital markets exhibiting substantialnew financing and ongoing trading activity.Companies in such weak uncertainty avoidance countries are more likely to disclosehigher levels ofpublic investor-oriented information in order to compete in open marketsettings.Hypothesis 4: Companies from weak uncer-tainty avoidance countries are more likelyto discIose more investor-oriented informa

tion than those of strong uncertaintyavoidance countries.INDIV + , individualism versus collectivism, represents the degree of separatenesswithin a soclety. Collectivist socleties, with lessindividuality, are expected to discIose lowerlevels ofpublic information because their families and in-groups, for example, foster secrecy.Individualistic societies are less likely to havedeveloped large closely-held companies andare likely to be less dependent on banking relationships for capital. Because there are relatively less secretive business relationships in

an individualistic society, its companies aremore likely to exhibit higher levels of publicinvestor-oriented information.Hypothesis 5: Companies from individual-istic countries are more likely to disclosemore investor-oriented information thanthose of collectivist countries.

MASCU +), masculinity, is a cultural ten-dency toward assertiveness and achievement.More masculine countries are likely to begrowth-oriented, economically and otherwise.Such countries are more likely to advocatebusiness relationships and institutions thatfoster growth activities. 1b compete cost effectively in the business world, businesses inmasculine societies are more likely to disclosehigher levels of information.Hypothesis 6: Companies from masculinecountries are more likely to disclose more

investor-oriented information than thoseoffeminine countries.POWER -), power distance, denotes thedispersion of authority in a society. In a society with high power distance, there is less dispersion of and less questioning of authorityfigures. High power distance societies arelikely to have developed businesses and related institutions that discourage extensivesharing ofinformation. Contrarily, enterprisesin low power distance countries are likely to

face the demands oftheir constituents by disclosing higher levels of information.Hypotbesis 7: Companies from low powerdistance countries are more likely todisclose more investor-oriented information than those of high power distancecountries.lnternational ependence ModelA second model, the International Dependence Model, incIudes the variables ofthe International isclosure Model. However,subsamples of the total sample of companies,are used to examine whether enterprises do-ing business mainly in their home country aremore likely to disclose information commensurate with their home culture, while enterprises doing business internationally arelikely to discIose information commensuratewith the global culture. If an enterprise competes in the international marketplace, it facesadditional risks and uncertainties with theprocurement of competitive resources. To reduce the costs of risks and uncertainties, anenterprise from a more secretive country maybe willing to disclose more information to thepublicoThe international dependence proxy is thelevel of total foreign sales of an enterprisewithin its own country.14 It is deemed necessary to perform the split within each country

4 Note that total foreign sales is not the same as foreignsales percentage. Pearson correlation tests show a .05relationship between the two foreign sales figures.This allow8 me to keep the foreign sales percentagevariable as an independent variable in the International Dependence Model.

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because countries exhibit varying dependenceon world markets. As in the International Disclosure Model, the dependent variable of theInternational Dependence Model is totaldisclosure.Each country's enterprises are split in halfto obtain two subsamples: high internationalfirms and low international firms. For example, of the 31 firms in the French sample,the 16 firms with foreign sales of less than 6billion French franca are in the first subsetrepresenting low international dependence.The 15 firms with foreign sales of more than6 billion French francs are in the secondsubset representing high internationaldependence. H countries' low internationaldependence firms are then combined, as arethe high international dependence firms. Thetwo resulting subsets are used to measurewhether low versus high international dependence makes a difference in the culture-disclosure relationship.Hypothesis 8: Firms exhibiting low depen-dence on international resources are likely

to exhibit a significant relationship between disclosure and the secretive natureoftheir home culture, but the firms exhibiting high dependence on internationalresources are likely to show little or lessculture-accounting relationship.15

Research DesignThe random sample of enterprises is selected from Compustat Global Vantage (1990)or the International Brokers Estimate System(1986-1992) in order to ensure that there isinvestor appeal. The sample is a composite ofsmall, medium and large business firms, bysize of revenue; this size variation allows forexamination of disclosure behavior of localversus international firms because (in thesample selection stage) larger firms are assumed to have higher levels of foreign sales.The variation in firm size in this study differsfrom the Salter and Niswander (1995) studythat included companies from the largest1,000 in the world.Because disc10sures across industries varysomewhat, this research primarily ineludes six

Accounting HoruonslMarch 1996

manufacturing industries: building construction, chemicals, electronic equipment, fabricated products, machinery and transportationequipment. These industries represent severalof the major imports and exports of the countries in this study. Saudagaran and Biddle(1995) found that industry exports to specificcountries positively relate to the choice offoreign listing locations. In other words, companies in certain industries appear to list on certain foreign stock exchanges because the firmshave more exports to those countries.Seven industrialized countries are examined: France, Germany, Hong Kong, Japan,Norway, the U.K and the U.S. The culturaldiversity of these countries makes possible ananalysis ofthe culture-disclosure relationship.From 795 requests for English versionannual reports, 1 received a 33 percentresponse rate. Of the 266 annual reporta received, 256 provided the information neededfor this study.16 A test for non-response biasindicated no bias presento The intent of thisstudy, to obtain companies with varying lev

els ofinternational resource dependence, appears to have been achieved with the receiptof small, medium and large companies' annualreporta.1 use descriptive analysis to examine averages and ranges of the company data andcross-sectional analysis to investigate the research hypotheses. Ordinary least squaresregression analysis statistically examines theInternational Disclosure Model to determinewhether culture and market forces correlatewith investor-oriented disclosures. A Wald teststatistically examines the International De-pendence Model to determine whether there

15 Less relationship implies that the statisticalsignificanee of any relationship between culture and accounting in the high interna tional firms will not be as strongas its significance in the low international firms. Inother words, the high international firms will act morelike the global competitive culture then possibly theirlocal culture.6 The 256 annual reports are disbursed as follows: 1991

1), 1992 l08), and 1993 (147). My requests forthe most recentO annual reports were sent betweenJanuary and April of 1994.

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Spontaneous Harmonization Effects o ulture and Market Forces 29

are differences in the culture-disclosure relationships when firms have low versus highinternational dependence.17RESE RCH RESULTSDescriptive nalysisTable 2 presenta descriptive statistics forthe total sample of companies and for coun

t y samples. First, the statistics for the totaland country samples show that the intendedresearch design has been attained. The totalcompany sample ranges in size from U.S. 24million to U.S. 192 billion asseta. With thewide ranges of each cultural variable in thetotal sample, it is clear that cultural diversityhas been achieved with this sample of business enterprises. The ranges ofthe dependentvariable and the other independent variablesalso show wide variation aeross enterprises,thereby providing for the possibility of stat istical relationships. Note that the debt ratio ofa few enterprises is higher than 100 becausethe stockholders' equity is negative.18Second, the statistics for the countrysamples in table 2 show that the U.S. enterprises have the highest average disclosure(73 ) in their annual reporta, with the U.K.being a close second with 68.7%. These highdisclosure scores are as expected because priorstudies have shown high disclosure in AngloAmerican countries. While Japan and the U.S.exhibit the lowest average foreign sales to total sales (about 27%), Norway and Franceshow the largest (in the 54-59% range). Theseresulta may indicate that Japanese and U.S.companies have large local populations towhich they seU their products, while Norwegian and French companies seek more foreigncustomers. Norway has the highest averagedebt ratio (72.8%), with Germany at 71.6%and Japan at 68.7%. Several studies havenoted that Germany and Japan rely heavilyupon bank debt. In this sample, the largestfirms, on the average, are located in Japan,the U.S. and Germany, in descending order.This result is consistent with these countriesbeing noted for their high level of industrialgrowth. Of the seven countries, the U.K. exhibits, on average, the smallest firms.

Third, because the Pearson correlationcoefficienta show very Httle multicollinearitypresent aeross the independent variables, atable is not presented. Individualism andpower distance show moderate collinearity at-.67, which is expected because eacb ofthesecultural variables defines a person's relationship in society. Individualism defines aperson's relationship with other people in asociety, while power distance defines a person'srelationship with powerful institutions in asociety. Variance inflation factors are examined and no severe multicollinearity is found.Total foreign sales, the international proxy, ishighly related to total assets but barelyrelated to the natural log of total assets(Pearson correlation coefficienta of 94 and .32,respectively).FinalIy, although not displayed in table 2,the six industry samples show some interesting statistics. The highest average disclosure(72.1%) is found in the chemical companies,with the lowest disclosure (59.6%) found inbuilding construction firms. The building construction firms also display the lowest average foreign sales at 14 . The building construction findings are consistent with its regional and local nature. The highest foreignsales are made by firms in the chemical industry (45.6%) and in the transportationequipment industry (45.5%). The highest average debt ratio (68.2%) occurs in the transportation equipment enterprises probablybecause almost half of those enterprises areGerman or Japanese. In this study, the largest firms exist in the transportation equipment and electrical equipment industries,17 The Wald test is peonned on ea ch cultural variablein the two reduced models (low and high). The F-testcompares the low versus high international dependence samples to determine whether th ere is a ditrerent etrect of each cul tura l variable on disc1osure. Forthis study, the Wald test is more appropriate than tbeChow test because it can examine structu ral ditrerences between individual parameters and groupa ofparameters, while using only one covariance matrix.The Chow test examines overall structural dift'erencesonly.18 Tests that exc1ude these four finns show similar results to the tests tbat include tbese firmB.

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30 Accounting Horizons I March 996

TABLE2International Disclosure Model Descriptive Statistics

7btal SampleAl1 Enterprises (n=258) MeJm Std.Dev. MiDimllm Maximlllla

DISC(%) 61.8 13.5 12 89FSALES% 38.9 27.3 O 100DEBTRATIO ( ) 59.7 20.3 2 171FIRMSIZE ( U.S. mil.) 6,853 22,006 24 192,876UNCER 56.3 22.5 29 92INDIV 69.7 22.3 25 91MASCU 61.9 20.0 8 95POWER 46.6 13.5 31 68Country Mude .

France (n=31) Mmm Stci.DeV. MiDimYID M a ~ n m lDISC ( ) 62.8 12.2 29 87FSALES% 54.8 20.5 12 91DEBTRATIO ( ) 65.5 15.6 36 93FIRMSIZE ( U.S. mil.) 5,222 8,466 83 44,311

Germany (n=29)DISC (%) 57.3 10.6 26 80FSALES% 49.4 17.0 7 75DEBTRATIO ( ) 71.6 13.2 43 93FIRMSIZE ( U.S. mil.) 8,443 14,834 55 53,284Hong Kong (n=29)

DISC ( ) 56.8 6.3 47 69FSALES% 38.3 37.7 O 98DEBTRATIO ( ) 34.3 16.8 2 66FIRMSIZE ( U.S. mil.) 1,972 3,034 38 10,461Japan n-39)DISC ( ) 59.7 11.6 27 80FSALES% 26.1 21.0 O 74DEBTRATIO ( ) 68.7 15.5 36 95FIRMSIZE ( U.S. mil.) 12,071 18,245 455 80,465Norway (n=16)DISC ( ) 59.3 17.6 32 81FSALES% 59.0 34.3 O 78DEBTRATIO ( ) 72.8 28.2 47 171

FIRMSIZE ( U.S. mil.) 1,365 2,839 24 11,705United Kingdom n-47)DISC ( ) 68.7 8.7 52 86FSALES% 41.4 30.2 O 85DEBTRATIO ( ) 55.9 17.0 19 107FIRMSIZE ( U.S. mil.) 675 1,061 53 5,629United States (n=65)DISC ( ) 73.0 8.2 48 87FSALES% 27.8 18.2 O 70DEBTRATIO ( ) 57.1 17.7 15 103FIRMSIZE ( U.S. mil.) 11,787 38,796 32 192,876Note: The country samples do not inelude culture because Hofstede's (1980) cultural variables do notallow for cu ltural variation within a country. No such study exists.

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Spontaneous Harmonization Effects ofCulture and Market Forces 31

with average assets of U.S. 23 billion andU.S. 9 billion, respectively.Intemational Disclosure Model7btal SampleResults of the ordinary least squares (OLS)regression of the total sample in table 3 showstrong support (p < .0001) for the hypothesesofthe International Disclosure Model. AH variables except power distance are highly significant and are related to disclosure in the hypothesized directions. Together, the independent variables explain 48 ofthe variation ininvestor-oriented disclosures of businessenterprises.The estimated coefficient for foreign sales(FSALES%) is positively related to disclosure,thereby indicating that firms dependent onforeign customers are more willing to disclosehigher levels ofinvestor-oriented informationin their annual reports. The DEBTRATIO isnegatively related to disclosure, an indicationthat firms with more debt are likely to disclose less public information. The FIRMSIZEcoefficient exhibits a positive relationship,thereby suggesting that larger firms disclosemore annual report information.Three ofthe four culture-accounting relationships are highly significant. As predicted,individualism (lNDIV) and masculinity(MASCU) are positively related to disclosure,while uncertainty avoidance (UNCER) isnegatively related. Because power distance(POWER) is moderately correlated withINDIV, a multivariate analysis, such as trusmodel, can result in confounding effects withvariables that are correlated. The culture-accounting results are evidence that the secretiveness of a country is associated with theinvestor-oriented disclosure levels ofits business enterprises and are support for Gray's(1988) hypotheses.Alternate 7est8 not pre8ented intabular tornaIn addition to the weighted disclosurescores, 1 examined unweighted scores for thedependent variable. In other words, for eachitem disclosed by a company, one point is assigned, rather than a number between one and

four. Cross-sectional analysis of theunweighted disclosure scores in a regressionmodel show results that are extremely similar to those with the weighted scores. In theunweighted model, the explanatory power isone percentage point lower and the estimatedcoefficients of the variables are somewhatlower, when compared with the weightedmodel. The only significance level that isslightly lower relates debt ratio to disclosure;the significance drops from a .05 to a .10 level.The total sample for the International Dsclosure Model is also tested with weightedscores using the disclosure scoring methodsof Adhikari and Tondkar (1992), Barrett(1976), Choi (1973) and Singhvi and Desai(1971). Results are very similar to those ofthecomprehensive scoring method of trus study.The explanatory power of the four additionalmodels ranges from 45 percent to 50 percent,with a variables except power distance significantly related to disclosure, in the directions predicted.CountryModel.Also in table 3 are OLS results of eachcountry's enterprise disclosures regressed onforeign sales, debt rat io and firm size. AlI threeindependent variables significantly heIp toexplain 28 percent ofthe disclosure variat ionin French annual reports and 49 percent ofthe disclosure variation in Japanese annualreports. 19 In each country model, firm Bize ispositively associated with disclosure at a significance level ofp < .05 or better. The coeffi-cient of debt rat io is negatively related to disclosure in three countries, France, Germanyand Japan, evidence of their strong bankingand government relationships. Foreign sales19 On]y EngJish version annual reporta are used in this

study because the point of view is that of an EngJishreading investor.The prio r accounting discl08ure atudies cited in this paper are based upon U.S. investora,except for: 1) Firth s 1978) atudy about U.K. usersand (2) the Baker et al. 1977) study about U.S. andAuatraJian usera. The 1992 stock exchange discl08uresurvey ofAdhikari and lbndkar (1992) W88 sent to 41countrles, but all the surveys werewritten in English.English is considered to be the globallanguage ofbusines8. t is the language to which companiea moat of-ten translate their annual reporto

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32 Accounting Horizons I March 1996

TABLEIntemational Disclosure Model Regression ResultsDISC =bo b1FSALES - b.fJEBTRATIO baFIRMSIZE- olUNCERc b5INDNc bsMASCUc- b,'OWERc E

btal Sample (n=256)Expected Estimated

Variable Rel&2DlbiD ~ e f f i c i t m lIntercept NA 17.020FSALES 0.105DEBTRATIO -5.799FIRMSIZE 3.120UNCER -0.184INDIV 0.307MASCU 0.099POWER 0.159F-value: 34.37 (Prob. > F = 0001) Adjusted R-Square: 0.48eou fry odelsYariableFrance (n=3l)lnterceptFSALESDEBTRATIOFIRMSIZE

ExpectedRel&2nshiDN

EstimatedCoefficient

44.7190.118-30.9374.110F-value: 5.01 (Prob. > F =0.0068) Adjusted R-Square: 0.28Germany (n-29)lnterceptFSALESDEBTRATIOFIRMSIZE

NA 45.2880.046-19.6313.141F-value: 3.25 (Prob. > F =0.0386) Adjusted R-Square: 0.19Hong Kong (n=29)InterceptFSALESDEBTRATIOFIRMSIZE

NA 46.0170.0551.5671.323F-value: 1.65 (Prob. > F =0.2027) Adjusted R-Square: 0.06Japan (na39)InterceptFSALESDEBTRATIOFIRMSIZE

NA 22.7970.141-13.1714.997F-value: 13.32 (Prob. > F = 0.0001) Adjusted R-Square: 0.49

t S t a t i s i ~2.9654.972

-1.7729.297-5.7009.0463.1572.610

lStatisic3.0571.261

-2.4682.853

4.0670.407-1.3192.741

9.0001.4540.2001.762

2.4231.991-1.4474.583

One-TailDYalue0.00160.00010.03880.00010.00010.00010.00090.0048 nps

One-TailDYalue.0025.1091.0101.0041

.0002.3438.0995.0056

.0001.0792.4217.0451

.0103.0271.0783.0001(Continued on next page)


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Spontaneous Harmonization Effects of ulture and Market orces 33

TABLE 3 Continued)Expected Estimated One-Tail

Variable Re1aiimllbill Coefficieni t S i l ~ i l i i ~ p-ValueNorway (n=16)Intercept NA -12.129 -0.876 .1991FSALES -0.041 -0.464 .3253DEBTRATIO 22.857 2.131 .0272npsFIRMSIZE 9.438 5.193 .0001F-value: 9.94 (Prob. > F =0.0014) Adjusted R-Square: 0.64United Kingdom (n=47)Intercept NA 44.585 8.217 .0001FSALES 0.138 4.169 .0001DEBTRATIO 3.707 0.666 .2545FIRMSIZE 2.823 3.213 .0012F-value: 14.64 (Prob. > F =0.0001) Adjusted R-Square: 0.47United States (n=65)InterceptFSALESDEBTRATIOFIRMSIZE

NA 55.4120.2031.2861.525

18.1994.4890.2703.221

.0001.0001.3939.0010F-value: 21.58 (Prob. > F =0.0001) Adjusted R-Square: 0.49nps =not predicted signis most positively related to disclosure in theU.K, the U.S. and Japan. These three country models have high explanatory power (adjusted R-squares of at least .47), which meansthat the independent variables help to explain47 percent of the variation in annual reportdisclosures.Norway, with the smallest sample size, hasexplanatory power of 64 , with larger firmsdisclosing more information, but higher debtratios influencing higher disclosure levels,opposite ofthe prediction. In the sample, Norway has moderate uncertainty avoidance, buthigh debt ratios. Norwegian companies havebeen shown to have high debt structures(Sekely and Collins 1988). With a populationof four million people, Norway may not havesignificant equity ownership of companies.Except for Hong Kong, the overall significanee ofthe F-value for each country model is.05 or better, which is the conventionallevels.

Hong Kong's country model explains the leastamount of disclosure variation that occurs intheir corporate annual reports. Per the standard deviation of disclosure in table 2, thesereports also have the least variation to be explained.International Dependence Model

In general, the Wald test of the International Dependence Model shows strong evi-dence to support H8. There is evidence thatcompanies more dependent on local resourceslow internat ional dependence) disclose information consistent with their local culture,while companies more dependent on intern -tional resources (high international dependence) disclose either lesslike their home culture or unlike their home culture. In particular, table 4 presents the results ofthe variousWald tests for the Interna tional DependenceModel.


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Spontaneous Harmonization Effects of ulture nd Market Forces 35

sure tells us there is a change at the p < .01significance level) in the culture-accountingrelationship, but it does not tell us what particular cultural variables are influential or inwhieh direction the ehange oecurs.FinalIy, the separate cultural variables aretested via a third Wald test. Results in thelower portion of table 4 provide relativelystrong evidenee that uncertainty avoidanceand masculinity are cultural traits that relatedifferentIy with accounting discIosure, depending upon the degree of internationalismof a firmo For example, at a significance levelof .01 or better, table 4 provides evidence thatthe relationship ofuncertainty avoidance andaccounting disclosure is stronger for the lowinternational firms. B predicted, local firmsdisclose more like their culture than do nter-n tion l firms the absolute value of theUNCER coefficient of local firma is strongerat -0.35 than is the -0.11 coefficient). Masculinity is significantly related to disclosure forlocal firms, but not significantly related for international firms, as predicted. Individualismhas no structural change. Power distance,probably because it is negatively correlatedwith individualism and therefore has confounding effects, is not significant or of theproper signo

SUMMARY ND IMPLIC TIONSThis study examines the relationship between enterprise aceounting disclosure andboth market and cultural forces across sevencountries. It attempts to ascertain whethercultu re underlies corporate disc10sure behavior and whether internat ional resource dependence causes firms to disclose higher levels ofinformation. The study a1so investigateswhether local firma disclose information commensurate with the secretiveness of theirhome culture, while internatonal firms disclose information commensurate with the global culture that is differently market-driven.1 argue that intemational firms from secretive countries are likely to be motivated to dsclose higher levels o public information thanthey would at home, in order to show the quality of their operations.

The results ofthe Internat ional DisclosureModel are consistent with resource dependence theory. There is evidence that companies with higher oreign sales (customers) aremore likely to disc10se higher levels of investor-oriented information. Companies withreater dependence on debt financing, i.e.,usually a more local resource, are found todisc10se less public information. Being morelikely to compete international ly for resources,larger companies disclose higher levels ofinvestor-oriented inormation. The International Disc10sure Model also provides evidenceof Gray s 1988) theory of cultural influenceupon accounting, that the secretive nature oa culture relates to the level of accounting disc10sure practices. Companies domiciled in cul-tures possessing more individualism, more mascu1inity and lesa uncertainty avoidance are morelikely to disc1 se higher levels of nformation.The theory o cultural borrowing is manifest in the results ofthe International Dependence Model. When firms are more internationally dependent, their disclosure behavioris different from their home culture. In otherwords, international firms from more secretive countries borrow the global culture oftheir competitors, as evidenced by less secretive disc10sure practices ofinterna tional firms.This study not only provides additional support for the relationship between levels of fi-nancial disc10sure and cultural secrecy, butalso goes further by answering Salter andNiswander s 1995) question about what canchange culture: dependence on intemationalresources. lbtal foreign sales has been shownto be a viable proxy for intemational dependence, with potential usefulness in future international research studies.The results o this empirical study areimportant because they suggest that total accounting harmonization may be difficult sinceaccounting disc10sure practices appear to beculture-driven through market forces. Thequest to harmonize accounting standardsacross aU companies in a countries is a debatable position.The results imply, though, that firms operating in the international marketplace are

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36

spontaneously disclosing high levels of publicinformation. These firms show evidence ofharmonization effects of global culture andmarket forces on their accounting disclosurebehavior. The global market may exert sufficient force as to make regulated harmoniza-

Accounting Horizons/ March 1996

tion for multinational corporations unnecessary. On the other hand, the findings suggestthat it may be possible for the IASC andIOSCO to harmonize accounting disclosuresfor firms listing on foreign stock exchanges.

REFERENCESAdhikari, A., and R. H. 'lbndkar. 1992. Environmental factors influencing accounting disclosure requirements of global stock exchanges. Journal o{ International Financial Management and Accounting 4:75-105.Alchian A., and H. Demsetz. 1972. Production, information costs, and economic organization. TIu Ameri-can Economic Review 62: 777-795.Baker, H. K., R. Chenhall, J. Haslem, and R. Juchau. 1977. Disdosure of mater ial information: A crossnational comparison. TIu International Journal o{Accounting 13 1): 1-18.Barrett, M. E. 1976. Financia reporting practices: Disclosure and comprehensiveness in an internationasetting. Journal o{Accounting Research 14 1): 10-26.Bavishi, V. 1991 International Accounting and uditing Trends, 2nd edition. Princeton, NJ: Center forIntemational Financia Analysis and Research.Belkaoui, G. F. 1983. Economic, poltica and civil indicators and reporting and disclosure adequacy:Emprica investigation. Journal o{ Accounting and Public Policy 2: 207-219.Bloom, R. and M. A. Naciri. 1989. Accounting standard setting and culture: A comparative analysis oftheUnited States, Canada, England, West Germany, Australia, New Zealand, Sweden,Japan and Switzerland. TIu International Journal o{ Accounting 24: 70-97.Buzby, S. L. 1974. Selected items ofinformation and their disclosure in annual reports. The AccountingReview 49: 423-436.Ce, A. R. 1961. Corporate Reporting and Investment Decisions. Berkeley, California: Public AccountingResearch Program.Chandra, G. 1974. A study of the consensus on disclosure among public accountants and security ana-1ysts. TIu Accounting Review 49: 733-742.Choi, F. 1973. Financial disclosure and entry to the European capital market. Journal o{ Accounting Re-search 11: 159-175.Chow, C., andA. Wong-Boen. 1987. Voluntary financial disclosure by Mexican corporations. The Account-ing Review 62: 533-541.Cooke, T. E. 1991. An assessment ofvoluntary disclosure in the annual reports ofJapanese corporations.TIu International Journal ofAccounting 26: 174-189.Darrough, M. N., and N. M. Stoughton. 1990. Financial disclosure policy in an entry game. Journal ofAccounting and Economics 12: 219-43.

Diamond, D., and R. Verrecchia. 1991. Disclosure, liquidity, and the cost of capital. TIu Journal o{ F-nance 46: 1325-1359.Firth, M. 1978. A study of the consensus of the perceived importance of disc10sure of individual items incorporate annual reporta. TIu International Journal of Accounting 14 1): 57-70.o 1979. The impact of size, stock market listing, and auditors on voluntary disclosure in corporateannual reporta. Accounting and Business Research 9: 273-280.Global Vantage. 1990. New York: Standard & Poor's Compustat Services.Gray, S. 1985. Cultural influences and the internatonal classfication of accounting systems. EI SMWorkshop on Accounting and Culture. Amsterdam.o 1988. Thwards a theory of cultural influence on the development of accounting systems internationally. B CUS 24: 1-15.

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Hayek, F. A. 1967. Studies in Philosophy, Politics, and Economics. Chicago, IIlinois: The University ofChicago Presa.o 1988. The Fatal Conceit: The Errors of Socialismo Chicago, Illinois: The University o ChicagoPress.Hofstede, G. 1980. Culture Consequences: International Differences in Work-Related Values. Beverly Hills:SAGE Publications.Internatonal roJrers Estmate System aBES). 1986-1992. Summary Data Tapes. N ew York: IIBIEIS, Inc.Lundblad, H.I991. Factors underIying voluntary discl08ure: An application ofmulti-attribute utility theoryto financial disclosure. Working paper, California State University, Nortbridge, California.McKinnon, J. L. 1984. Application of Anglo-American principIes of consolidation to corporate financialdisclosure in Japan. ABACUS 20: 16-33.McNally, G., L Eng, and C. Hasseldine. 1982. Corporate financial reporting in New Zealand: An analysisof user preferences, corporate characteristics and disclosure practices for discretionary information.Accounting and Business Research 13: 11-20.

Menger, C. 1883. Investigations into the methods of the Social Sciences with Special Reference toEconomics.New York: New York Univers ity Press.Mueller, G. 1967. International Accountng. New York: Macmillan.Perera M. 1989. Towards a framework to analyze the impact of culture on accounting. The InternationalJournal ofAccounting 24: 42-56.Pfeffer, J. and G. Salancik . 1978. The External Control ofOrganizations: A Resource Dependence Perspective. New York: Harper & Row, Publishers.Porter, M. E. 1986. Changing patterns of international competition. California Management Review 28(2): 9-41.Radebaugh, L. H. 1975. Environmental factors influencing the development of accounting objectives, standards and practices in Pero. International Journal ofAccounting Education and Research 11 (1):39-56.Salter, S. B., and F. Niswander. 1995. Cultural influence on the development of accounting systems internationally: A test of Gray s [1988] theory. Journal of nternational Business Studies 26 (2): 379-397.Saudagaran S. M. 1988. An empirical study of selected factors influencing the decision to list on foreignstock exchanges. Journal ofInternational Business Studies 19 (1): 101-127.-- nd G. C. Biddle. 1995. Fore ign li sting location: A study of MNCs and stock exchanges in eightcountries. Journal ofInternational Business Studies 26 (2): 319-341.Sekely, W. S., and J. M. Collins. 1988. Cultural influences on international Capital Structure. Journal ofInternational Business Studies 87-100.Singhvi, S. 1968. Characteristics and implications o inadequate disclosure: A case study of India. TheInternational Journal ofAccounting 3 2): 29-43.-- nd H. Desai. 1971. An empirical analysis of the quality of corporate financial disclosure. TheAccounting Review 46: 129-138.Verrecchia, R. E. 1983. Discretionary disclosure. Journal ofAccounting and Economics 5: 179-194.Williamson, O. 1975. MarJrets andHierarchies: Analysis andAntitrustImplications. New York: Free Press.

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