The effect of cultural and market forces on investor-oriented accounting disclosure practices of local versus international enterprises

Motivation for this study arises from ongoing international accounting harmonization efforts to increase financial reporting comparability across countries. While proponents contend that capital market investors need comparability, harmonization opponents argue that cultural differences across countries threaten the efforts to achieve a workable consensus among accounting regulatory bodies. Opponents also contend that international competitive pressures may be causing enterprises to increase financial disclosures voluntarily.;This research examines cultural and market forces that likely influence the investor-oriented accounting disclosure behavior of enterprises in local and international environments. Total disclosure level, the dependent variable, is measured from data in an enterprise's English version annual report. Cultural forces include individualism, masculinity, power distance, and uncertainty avoidance. Market forces, obtained from annual reports and survey responses, include foreign sales, foreign employees, institutional ownership of stock, debt ratio, and firm size. The study uses multiple regression analysis to examine the data from business enterprises across France, Germany, Hong Kong, Japan, Norway, the United Kingdom, and the United States.;Results show that disclosure practices of enterprises are, as expected, significantly positively correlated with individualism, masculinity, either foreign sales or foreign employees, institutional ownership, and size. Also, as expected, significant negative correlation exists between disclosure and uncertainty avoidance. Additionally, there is evidence that firms domiciled in more secretive countries, but more dependent on international resources, have disclosure behavior contrary to their home culture. This suggests that outside forces, such as foreign operations, can change cultural tendencies related to information dissemination.;There are two main findings in this study. First, competitive market forces appear to encourage firms to disclose higher levels of financial information. Second, cultural forces appear to underlie a country's disclosure practices, except when enterprises enter the global marketplace.;Implications are as follows. First, mandated international harmonization of accounting disclosures may not be easily accomplished because culture (which is not readily mutable) plays an influential role in information dissemination. Second, increased dependence of enterprises on the international marketplace appears to be causing a spontaneous increase in enterprise accounting disclosure.