Do Auditing and Reporting Standards Affect Firms’ Ethical Behaviours? The Moderating Role of National Culture
Do Auditing and Reporting Standards Affect Firms' Ethical Behaviours? The Moderating Role of National Culture
Yasemin Zengin Karaibrahimoglu 0 1
Burcu Guneri Cangarli 0 1
0 B. Guneri Cangarli Faculty of Business, Izmir University of Economics , Sakarya Cad. No: 156 Balcova, Izmir 35330 , Turkey
1 Y. Zengin Karaibrahimoglu (&) Faculty of Economics and Business , Accounting , University of Groningen , Nettelbosje 2, 9747 AE Groningen , The Netherlands
This paper aims to examine the impact of national cultural values on the relation between auditing and reporting standards and ethical behaviours of firms. Based on a regression analysis using data regarding 54 countries between the years 2007 and 2012, we found that the impact of the perceived strength of auditing and reporting standards on the perceived ethical behaviours of firms is accentuated when a society is characterized by low power distance and ingroup collectivism, and high institutional collectivism, future orientation and uncertainty avoidance. Empirically, the study addresses a gap in the literature by highlighting the influence of national culture on the effectiveness of legal settings and regulations on ethical behaviours.
Ethical behaviour; Strength of auditing and reporting standards; Culture; GLOBE
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The corporate scandals emerging during the last two
decades have increased the amount of attention given to the
ethical behaviours of firms (EBF). All around the world,
civic organizations, as well as public and private
institutions are facing the challenge of how to improve EBF. For
this purpose, in recent years, forums and panels have been
organized in many different jurisdictions (e.g., Global
Ethics Forum, European Business Ethics Forum) and
ethical codes of conducts have been developed by different
professions and corporations (e.g., IFAC for professional
accountants, APA for psychologists; and Code of Conduct
or Ethics for companies such as Amazon, Apple, and Coca
Cola). New regulations have also been set (e.g., the use of
corporate governance principles for corporations, the
introduction of international auditing and reporting
standards). The ultimate aim of these efforts is to enhance EBF
through the clarification of ethical values and increasing
public interest in ethics, which is considered to be an
important driver of the economy (Garrison et al. 2008).
We follow Sims (1992, p. 506) and define ethical
behaviour as behaviour which is morally accepted as good
and right as opposed to bad or wrong in a particular
setting. Previous research shows that in addition to
company-specific (micro) factors, such as personal and
organizational values, EBF are also strongly affected by
country-specific (macro) factors, including social, cultural,
legal, political and institutional environments (Bartels
1967; Ekici and Onsel 2013; Vitell et al. 1993).
As a legal and institutional determinant, corporate
governance is seen as a vital mechanism for the prevention
of unethical corporate behaviours (Carcello 2009; Felo
2011). Corporate governance is a broad concept that
surrounds all internal (company-specific) and external
(country-specific) mechanisms with a role in monitoring
management to protect all stakeholders rights
(GarcaOsma 2006). From this point of view, all capital market
regulationsincluding political, legal and institutional
settingsthat aim to enhance the quality of auditing and
financial reporting are closely associated with strong
corporate governance (Karaibrahimoglu 2010). Stronger
auditing and reporting standards are assumed to provide more
reliable information (Boolaky and OLeary 2012), and
consequently improve EBF. However, ethics can be
affected by many contextual factors, and improving the
quality of legal and institutional settings alone may not be
sufficient to enhance EBF.
In fact, ethical values, attitudes and behaviours evolve
under the influence of culture (Hunt and Vitell 1992;
Scholtens and Dam 2007). Culture, defined as the
collective programming of the mind (Hofstede 2001, p. 9),
affects various stepsfrom awareness to behaviourin
ethical conduct (e.g., Alas 2006; Dubinsky et al. 1991).
Accordingly, in the business ethics literature, cultural
differences are perceived as the main indicators explaining
variation in practices in economic or entrepreneurial
activities (Alderson and Kakabadse 1994; Becker and
Fritzsche 1987; Bodley 2005; Hawkins 1993; Kaptein
2004; Karnes et al. 1989; Langlois and Schlegelmilch
1990; Mensah 2013; Schultz et al. 1993). Although there
are a small number of universally accepted ethical values,
such as honesty or loyalty, their practical interpretations in
business can vary across cultures (Smith and Hume 2005;
Vitell et al. 1993). Therefore, it can be argued that the
practical implementation of international auditing and
reporting standards, and hence their impact on EBF can be
affected by the cultural context. Although the recent
literature on standards stresses the importance of cultu (...truncated)