Abstract
This cross-national interdisciplinary research paper empirically investigates the association between cultural tightness–looseness and earnings manipulations. The analyses, which are based on panel-corrected standard errors method, indicate that cultural tightness–looseness, together with investor protection, future–time reference, capital market importance and economic development plays a critical role in shaping financial reporting choices. More specifically, this study finds that the opportunistic manipulations of reported accounting figures are less frequent in tight nations than in loose ones. The results of this study suggest that cultural tightness–looseness is an important explanatory variable that should be considered in future international comparative studies on earnings management behavior. Implications of the results for mitigating earnings management are presented.
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