The effect of national culture on the relationship between ifrs adoption and the cost of equity capital

Alan Diógenes Góis, Gerlando Augusto, Sampaio Franco de Lima, Nádia Alves de Sousa, Mara Jane Contrera Malacrida

Research output: Contribution to journalArticlepeer-review

Abstract

In this study we evaluated the effect of national culture on the relationship between IFRS adoption and the cost of equity capital in 2,692 large firms from 31 countries, covering the period 2002–2007. National culture was proxied by six dimensions: power distance, uncertainty avoidance, individualism, masculinity, long-term orientation, and indulgence. IFRS reduced the cost of equity capital when national culture was not included in the regression, and when power distance was included. Cost of equity capital was low in countries with high levels of uncertainty avoidance and indulgence. Our main finding is that the cost of equity capital tends to be low in countries with IFRS and long-term orientation. The fact that IFRS-related benefits (such as improved information quality and reduced cost of equity capital) may be compromised by components of national culture should be taken into account by investors and analysts in their forecasts and investment decisions.

Original languageEnglish (US)
Pages (from-to)69-85
Number of pages17
JournalJournal of International Accounting Research
Volume17
Issue number3
DOIs
StatePublished - Sep 1 2018

Keywords

  • Cost of equity capital
  • International Financial Reporting Standards (IFRS)
  • National culture

ASJC Scopus subject areas

  • Business and International Management
  • Accounting

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