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This study investigates how the association between national culture and earnings management compares between developed and emerging countries.

The empirical analysis relies on a sample of 6,313 firm-year observations from 11 emerging markets and 27,605 firm-year observations from 22 developed countries. The authors use ordinary least squares regression methods to test the hypotheses of the study.

Based on Hofstede's (2011) cultural dimensions, the authors find that firms from countries with a higher level of uncertainty avoidance and individualism are less likely to engage in earnings management, but the effect of uncertainty avoidance (individualism) is more (less) pronounced in the emerging countries. Moreover, the authors demonstrate that firms from emerging (developed) countries with higher levels of power distance and masculinity are less (more) likely to engage in earnings management. Finally, the authors find evidence of a trade-off between accruals-based and real earnings management in firms from countries with greater long-term orientation and an indulgence cultural dimension.

This paper adds to the literature by theoretically discussing and empirically analysing the role that developed and emerging countries' development plays on the effect of national culture on earnings management.

This study aims to analyse the association between country-level ethical judgement and earnings management and the role that firm-level enforcement and the quality of accounting standards play in this association.

The analyses are based on a sample of 45,889 firm-year observations from 34 countries between 1998 and 2018. Based on the World Values Survey questionnaire, this study constructs a comprehensive index of the ethical judgement of each country.

The empirical findings suggest that firms from countries where ethically suspect behaviours are less acceptable are associated with lower levels of accruals-based earnings management and that firm-level enforcement and the quality of accounting standards dampen such association.

The results contribute to the debate about ethical issues in the accounting profession in an international context, adding to the sustainable development debate given that the creation of long-term value for firms is intrinsically related to business ethics and good quality financial reporting.

When it is known that countries’ ethically-related judgements reduce the level of earnings management, actions can be taken by regulators and other stakeholders to build fairer societies with a more sustainable view, given that the quality of the financial reporting is inextricably linked to how income and wealth are distributed.

While previous literature documents that ethical judgement at both the individual and organizational levels matter as key determinants of the way managers are involved with unethical accounting practices, this study investigates the role of ethical judgement at the country level in explaining earnings management.

This study analyzes the effect of the mandatory adoption of the International Financial Reporting Standards (IFRS) on the level of both accruals-based (AEM) and real earnings management (REM) in a comprehensive sample of firms from emerging markets. It also analyzes whether this effect differs depending on the nature/extent of IFRS adoption (full versus modified).

Some previous studies predominantly made up of samples from developed countries suggest a substitution of AEM for REM in the post-IFRS period. The authors test whether this trade-off among the two earnings management strategies is also evident in emerging markets, based on a sample of 27,789 firm-year observations from 18 countries between 2000 and 2018.

The results suggest that IFRS adoption in emerging markets is associated with the replacement of REM by AEM, unlike previous overall evidence in developed countries where firms appear to do the opposite. The results also show that this replacement is lower in the emerging markets fully applying IFRS, when compared to those applying a modified version of these international standards.

Possibly due to the poor institutional environment of emerging markets, coupled with greater flexibility inherited of IFRS principles-based approach, the authors reiterate an imminent concern about IFRS encouraging substitution of REM for AEM in emerging countries, namely in those applying a modified version of IFRS.

While the predominant IFRS literature in emerging markets remains focused on analyzing only single-country studies, promoting clearly mixed results, the authors enhance such discussion and foster this debate on a more international level by analyzing the joint effect of IFRS in 18 emerging markets and by comparing the effect of full and modified IFRS adoption.