The price of sinful behavior window dressing: Cultural embeddedness on cigarette packages and financial reporting quality |
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| Affiliation: | 1. Accounting Department, Xiamen University, China;2. School of Business, Central South University, China;3. School of Management, Xiamen University, China;1. School of Accounting, Business School, University of New South Wales Sydney, Australia;2. Department of Accounting, School of Management, Xiamen University, China;3. Department of Accounting, Faculty of Business and Economics, University of Melbourne, Australia;1. School of Business, Hohai University, Nanjing, Jiangsu 211100, China;2. School of Economics, Nanjing University, Nanjing, Jiangsu 210093, China;1. Business School, Beijing Normal University, China;2. Business School, University of International Business and Economics, China;3. School of Accounting, Zhongnan University of Economics and Law, China;4. Gordon Ford College of Business, Western Kentucky University, United States;1. School of Economics and Management, Beijing Jiaotong University, Beijing, 100044, China;2. School of Business, Renmin University of China, Beijing, 100872, China;1. School of Accountancy, Central University of Finance and Economics, China;2. Business School, University of International Business and Economics, China;3. John Cook School of Business, Saint Louis University, United States |
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| Abstract: | Using hand-collected data from China, we examine whether cultural embeddedness on cigarette packages affects corporate financial reporting quality, and further investigate the moderating effect of foreign directors. The findings reveal that firms in provinces with more cultural embeddedness on cigarette packages exhibit significantly higher extent of discretionary accruals. This finding suggests that cultural embeddedness on cigarette packages as a tobacco-related sinful behavior window dressing shapes unethical social atmosphere, elicits unethical managerial behavior, brings out information distortion, and eventually reduces financial reporting quality. Moreover, the positive relation between cultural embeddedness on cigarette packages and discretionary accruals is less pronounced for firms with foreign directors than for their counterparts. Furthermore, our findings are robust to a variety of sensitivity tests using alternative proxies for cultural embeddedness on cigarette packages and financial reporting quality, and further our conclusions still stand after employing the difference-in-difference approach, two-stage least square regression procedure and two-stage Heckman method to address the endogeneity problem. Lastly, pictorial health warnings on cigarette packages are significantly negatively related with country-level smokers, but cultural embeddedness on cigarette packages is significantly positively associated with tobacco consumption at the province level and owner-manager agency costs in China, providing supportive evidence to our findings. |
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| Keywords: | Cultural embeddedness on cigarette packages Foreign directors Financial reporting quality Sinful behavior window dressing Discretionary accruals Financial misstatement |
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