1. LECTURE 5: Differences in Culture (and its risk)

2. Hofstede’s cultural Dimension

3. Risk Analysis: Disclosures
Broadly speaking, the term disclosure refers to publicly revealing any information concerning a company, whether on a voluntary or on a statutory basis.
According to the World Bank (2003), the measurement of the degree of disclosures for a country takes into account the following elements:
the existence of the obligation to report all the events considered relevant for investors (information on family, indirect ownership, beneficial ownership and voting agreement between shareholders);
recourse to auditing companies from outside the enterprise;
the level of company-related information available on the market.

4. EXAMPLE for Disclosure
Following a number of financial scandals such as Enron and Worldcom, and after the 2008 financial tsunami, there are rising concerns about protecting investors’ interests and regulating financial institutions. Disclosing company information to the public is regarded as an important mechanism in this context. In fact, a high level of policy disclosure may enhance both the investors' confidence and the capital markets’ efficiency (Caruana, 2003).
The stock market crash of 2008 occurred on September 29. The stock market, as represented by the Dow Jones Industrial Average, fell points in intra-day trading. That was the largest point drop in any single day in history. It was because Congress rejected the bank bailout bill.

5. Secrecy/transparency VS disclosure levels
Gray conducted two studies (1985, 1988) on cultural value dimensions that affect the development of accounting systems. In his 1988 study, he identified four accounting value dimensions in terms of risk: i. Professionalism VS statutory control: reflects how an organization exercises professional judgment in its managerial & financial systems; ii. Uniformity VS flexibility: reflects the degree to which an organization enforces uniform managerial & financial practices; iii. Conservatism VS optimism: reflects whether the organization adopts a cautious or risk-taking approach to measurement; iv. Secrecy VS transparency: reflects the degree to which an organization is willing to disclose its policies to the public.

6. Secrecy/transparency VS disclosure levels
Gray’s work can be summarized as follows:
Cultural dimensions (High Level)
Secrecy
Individualism
Low
Power Distance
High
Uncertainty Avoidance
Masculinity

7. Related studies on different Risk disclosures
Secrecy relates to the disclosure intensities. There are other studies based on Gray’s (1988) secrecy hypothesis which further confirm the significance of relationships between the cultural dimensions of uncertainty avoidance, power distance, individualism and masculinity with secrecy of policies of companies.

8. Related studies on different Risk disclosures
RESEARCHER
FINDINGS
Gray and Vint (1995) - involved industries in 25 developed and developing countries
positive correlation of accounting disclosure practices for individualism and masculinity and negative correlation of accounting disclosure practices for uncertainty avoidance and power distance
Zarzeski (1996) - involved seven developed countries
international firms from secretive countries are likely to be motivated to disclose higher levels of public information than they would at home
Jaggi and Low (2000) - involved six developed countries
culture has little or no influence on disclosure levels once legal system is considered
MacArthur (1996) - involved 47 companies in 9 countries
secrecy dimension has important links to power distance and individualism
Wingate (1997) -involved 39 developed & developing countries
culture areas affect more about disclosure indexes than the four cultural values
Hope (2003) - involved 39 developed & developing countries
it is too early to write off culture as an explanatory variable for annual report disclosure levels
Hooi (2004) -involved 37 listed commercial banks from 17 developed and developing countries
long-term orientation is found not to have a significant impact on banking disclosures.
the only cultural dimension that significantly affects banking disclosures is uncertainty avoidance