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Regulatory accounting Accounting

regulation in
environment, cultural values and developing
countries
board efficacy in
developing countries
Kais Baatour Received 24 July 2021
Revised 26 October 2021
Department of Accounting and Finance, Accepted 29 December 2021
Institut Superieur d’Informatique et de Gestion de Kairouan, Universite de Kairouan,
Kairouan, Tunisia;
Business Analytics and Decision Making Laboratory (BADEM),
Tunis Business School, Universite de Tunis, Tunis, Tunisia and
Institute for Globally Distributed Open Research and Education,
Gothenburg, Sweden, and
Moufida Ben Saada
Department of Accounting and Finance,
Institut Superieur d’Informatique et de Gestion de Kairouan, Universite de Kairouan,
Kairouan, Tunisia

Abstract
Purpose – This cross-country study aims to investigate from an interdisciplinary perspective the impacts of
the accounting regulation’s strength and cultural values of long-term orientation (LTO) and indulgence (ND) on
board efficacy in developing countries.
Design/methodology/approach – Board Efficacy Index scores for 54 developing countries over the period
2007–2016 were employed to ascertain predictors of management’s accountability to boards of directors and
investors. Two types of explanatory variables – formal and informal – were employed in a pooled Ordinary
Least Squares (OLS) analysis.
Findings – The research is the first to empirically show that more LTO and ND in a country have significant
and positive effects on board efficacy. The findings also show that the strength of auditing and reporting
standards (SARS) has a dominant impact on board efficacy, and the SARS’ consideration is recommended in
future cross-country research on board efficacy.
Practical implications – To restore investor confidence and increase the credibility toward firms,
regulatory authorities in developing countries are called upon to integrate compliance with accounting
and auditing regulations combined with cultural values in the implementation of good governance
practices.
Originality/value – This study contributes to the board efficacy literature in two significant ways. First,
the study constructs and empirically tests a conceptual model that integrates both informal factors, the
six cultural dimensions of Hofstede et al. (2010), and formal factors, the strength of accounting
regulations. Second, conducting a study on a sample not widely used in the literature, over a fairly long

JEL Classification — G30; G38; M41; Z10

© Kais Baatour and Moufida Ben Saada. Published in PSU Research Review. Published by Emerald
Publishing Limited. This article is published under the Creative Commons Attribution (CC BY 4.0)
licence. Anyone may reproduce, distribute, translate and create derivative works of this article (for both
commercial and non-commercial purposes), subject to full attribution to the original publication and PSU Research Review
authors. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/ Emerald Publishing Limited
2399-1747
legalcode DOI 10.1108/PRR-07-2021-0036
PRR period of time, highlights the governance characteristics of this context and strengthens the internal and
external validity of the study.
Keywords Corporate governance, Board efficacy, Long-term orientation, Indulgence, Auditing and reporting
standards, National culture, Hofstede
Paper type Research paper

1. Introduction
The acuteness of the issue of corporate governance continues to be on the global scene
following corporate scandals and financial crises that have shaken the confidence of
stakeholders in the financial ecosystem, including investors, regulators, analysts, lenders,
auditors, rating agencies and other stakeholders (Rafiee and Sarabdeen, 2012; Nurunnabi,
2017; De Villiers and Dimes, 2021; Espig et al., 2021; Lu and Wang, 2021). Faced with this
emblematic situation, scholars and international organizations, such as the Organization for
Economic Co-operation and Development (OECD), have established fundamental principles
of good governance practices formulated in reports and codes (e.g. Cadbury report, 2000;
World Bank Annual Report, 2008; OECD report, 2009, 2010).
The application of the good governance principles is disparate at the global level. While it
has been beneficial for developed countries, it is not the case for developing countries. The
narrowness of financial markets characterized by low transaction volumes, the absence of an
enforcement system that monitors the application of these principles, the concentration of
family ownership, the weakness of minority shareholders’ rights and the lack of transparency
through a low level of communication constitute the main obstacles to the successful
implementation of the corporate governance principles (Millar et al., 2005; Chan and Cheung,
2008; Okpara, 2011; Rafiee and Sarabdeen, 2012). These findings have prompted several
researchers to conceptualize and experiment with different governance models that improve
the quality of board control (Williamson, 2000; Boolaky and O’Leary, 2011; Boolaky et al.,
2013; Boolaky and Cooper, 2015; De Villiers and Dimes, 2021; Soschinski et al., 2021).
Defining governance as an “exercise of ethical and effective leadership by the governing
body towards the achievement of the following governance outcomes: ethical culture, good
performance, effective control and legitimacy” (IODSA, 2016, p. 20), few studies have
examined how informal and formal factors explain board control quality. More explicitly,
some studies have incorporated cultural values and the accounting regulatory environment,
respectively, in explaining board control efficacy (Nobes, 1983; Vanasco et al., 1995; Haniffa
and Cooke, 2002; Gorga, 2003; Li and Harrison, 2008a, b; Licht et al., 2005; Checherita and
Rother, 2010; Dutta and Mukherjee, 2012; Boolaky and O’Leary, 2011; Boolaky et al., 2013;
Boolaky and Cooper, 2015, Soschinski et al., 2021). Efficacy is defined as “the level of
accountability by management to the investors and the board, and the extent to which the boards
and investors exert strong supervision of management decisions” (World Economic Forum,
2009, p. 363, as cited in Boolaky and Cooper, 2015). This study fills this gap by examining
from a global perspective the effects of the strength of accounting and auditing standards
(SARS) and cultural values on the efficacy of board in developing countries.
Distinguishing from the work of Nurunnabi (2017) who investigated only Hofstede’s four
cultural dimensions of power distance (PDI), uncertainty avoidance (UAI), individualism
(IDV) and masculinity (MAS), this study develops and empirically tests a conceptual
framework of counseling efficacy by examining the other two cultural values of Hofstede et al.
(2010) namely LTO and indulgence (ND) without omitting two control variables, Ethical
corporation (EC) and Religious Diversity (RDI). While the research of Boolaky and O’Leary
(2011), Boolaky et al. (2013), Boolaky and Cooper (2015) and Avram et al. (2015) empirically
demonstrates that board characteristics, particularly efficacy, improve the accounting
regulatory environment, the SARS, this study tests via the constructed model the inverse Accounting
relationship, precisely the effect of this environment on efficacy. regulation in
The study is conducted on a sample of 54 developing countries during the period 2007 to
2016. Using multiple and standardized regressions on 509 observations from pooled data, the
developing
results show that SARS, LTO and ND positively and significantly affect board efficacy. An countries
accounting environment characterized by strong regulatory reporting and auditing
standards reduces earnings management, improves audit work in detecting irregularities
and increases the level of transparency via an increased level of communication. As a result,
the board of directors becomes more effective (Nurunnabi, 2017; Lu and Wang, 2021).
Culturally, an attachment of board members to LTO and ND values increases its efficacy as
these members accept changes based on a long-term view and prefer to enjoy a comfortable
job (Espig et al., 2021; De Villiers and Dimes, 2021; Lu and Wang, 2021). With the three
exceptions of MAS, UAI and RDI, PDI, IDV and ethical behavior (EB) values significantly
affect board efficacy.
The results of this study contribute to the literature in several aspects: first, the
construction of a model inspired by previous studies that combines both informal factors, the
six cultural dimensions of Hofstede et al. (2010), and formal factors, the strength of accounting
regulations, allows for a better explanation of board efficacy. Second, scholars and regulators
could provide guidance and solutions to a better implementation of governance practices.
Finally, conducting a study on a sample not widely used in the literature, as developing
countries, over a fairly long period of time, ten years, highlights the governance
characteristics of this context and strengthens the internal and external validity of the
research.
The reminder of the paper is organized as follows: the first two sections will be devoted to
the presentation of a model testing first the effect of SARS on board efficacy and second, the
impact of the two cultural dimensions, LTO and ND, on efficacy. The third section and the
fourth section, respectively, exhibit the methodology followed and the results obtained. We
conclude in the last section.

2. Conceptual framework and hypothesis development

Based on a review of previous studies (Gray, 1988; Vanasco et al., 1995; Shleifer and Vishny,
1997; Haniffa and Cooke, 2002; Licht et al., 2005; Li and Harrison, 2008a, b; Checherita and
Rother, 2010; Hofstede et al., 2010; Boolaky and O’Leary, 2011, Boolaky et al., 2013, Boolaky
and Cooper, 2015, Khlif, 2016; Soschinski et al., 2021), this section is devoted to the
presentation of the conceptual framework explaining the effect of SARS and cultural values
on board efficacy of firms belonging to developing countries.

2.1 The auditing and reporting standards’ strength and efficacy of the board
The SARS is defined as “the perceptions of a country’s competitiveness from the perspective of
auditing and reporting standards on a global scale. This is brought about through the use of
standards, as well as auditing and accounting practices that provide reliable information,
increase transparency and ensure access to information in a timely manner” (World Economic
Forum, 2009, p 19, as cited in Boolaky and Cooper, 2015). The SARS refers to the perception of
managers of the strength of financial and audit regulations in the country in which they work
compared to other countries according to a survey of 137 countries.
The strength of regulation is closely related to the efficacy of the directors’ board based on
two theoretical foundations, namely agency theory and transaction theory. The agency
theory, as developed by Jensen and Meckling (1976), is based on conflicts of interest between
shareholders as principals and managers as agents on the one hand and creditors and
PRR managers on the other hand. These conflicts create agency costs that can be reduced through
several mechanisms, mainly board independence and increasing the level of voluntary
communication (Shleifer and Vishny, 1997; Licht et al., 2005; Rafiee and Sarabdeen, 2012;
Khlif, 2016; Nurunnabi, 2017; De Villiers and Dimes, 2021; Liu and Wu, 2020; Lu and Wang,
2021). The latter can be improved through a strong framework in terms of reporting
standards, such as International Financial reporting Standards (IFRS), which lays down the
principles, rules and procedures for the accounting treatment of the economic facts carried
out by the company. In such a framework, the interests of minority shareholders are protected
and the manager is more inclined to apply the financial reporting standards and to comply
with the provisions of the International Auditing Standards (ISAs), particularly in the
presence of a renowned audit firm, the Big Four and the audit committee of directors’ board.
As a result, its discretionary power in accounting manipulations is reduced and the quality of
information is improved (Levitt, 1998; Francis et al., 2003; Cohen et al., 2004; Licht et al., 2005;
Boolaky et al., 2013; Nurunnabi, 2017; Liu and Wu, 2020; Soschinski et al., 2021; Boateng et al.,
2021). According to transaction theory, corporate governance aims “to clarify the carrying out
of the economic transactions by the efficacy of the chosen governance structures that have been
adopted to carry out the transactions at hand” (Williamson, 1996). In order to ensure the
efficacy and efficiency of the transaction, formal and informal structures must be in place.
The application of accounting standards relating to reporting and auditing is part of the
formal structures that inhibit inappropriate transactions and, therefore, management
opportunistic behavior.
Empirically, little research has examined the relationship between the strength of
accounting regulations and board efficacy. Boolaky et al. (2013) show that the strength of a
country’s reporting and auditing standards is positively and significantly associated with the
protection of minority shareholders’ interests based on regression results from
questionnaires sent to Chief Executives Officers (CEOs) in 133 countries during 2009.
Further, Boolaky and Cooper (2015) compare the SARS scores of 41 European countries
versus 31 Asian countries. They find that the strength of the legal and regulatory system as
well as the size of the foreign stock markets of Asian countries affect SARS more than that of
European countries. Avram et al. (2015) study the effect of governance levels on the strength
of reporting and auditing standards using a sample of 139 countries during 2009–2011. They
conclude that board efficacy, regulatory quality and rules of law significantly and positively
affect SARS scores. Nurunnabi (2017) investigates the relationship between SARS and board
efficacy in 69 countries from 2006 to 2014. The results confirm that SARS raises the level of
board efficacy. Following the results of these studies, we formulate the hypothesis as follows:
H1. The strength of reporting and auditing standards impacts positively the efficacy of
the board.

2.2 Cultural values and board efficacy

Culture is a key factor in the success of board efficacy. Hofstede (1980, p. 25) defines culture as
“the collective programming of the mind which distinguishes the members of one human group
from another”. National culture can affect governance through psychological factors related
to the perception and the shaping of individuals’ decision-making behavior, the country’s
reporting system and the allocation of resources (Zarzeski, 1996; House et al., 2004; Salter and
Doupnik, 1992; Stulz and Williamson, 2003). Culture is placed according to the theoretical
model of Williamson (2000) in Level 1 which represents informal institutions. It includes
norms, values, customs, beliefs and religion. At this level, considered as acquired, the change
of institutions is gradual and slow. Level 2 concerns formal institutions such as laws, political,
economic, environmental and social regulations. Level 3 includes governance structures such
as investor protection, capital and board structure, corporate control and takeover activities.
Licht (2001), Licht et al. (2005) and Li and Harrison (2008a, b) argue that cultural differences Accounting
between countries explain the diversity of their governance mechanisms. regulation in
Geert Hofstede’s cultural classification (1980, 1994 and 2010) is the most widely used in the
literature. Six dimensions measure culture, which are PDI, MAS (MAS), IDV, UAI, LTO and
developing
ND. PDI captures the degree of equality and inequality among individuals in a country. A countries
high PDI score indicates the existence of power and wealth unevenly in a country. IDV refers
to the degree of achievement of individual or collective goals. A high score of IDV shows that
the rights of individuals prevail in the country. MAS takes into consideration the weight of
gender (men versus women) in the attribution of social roles. In highly masculine societies,
managers give more importance to financial performance which gives them social
recognition. UAI reflects the degree to which individuals are tolerant to uncertainty and
ambiguity. A high UAI score represents intolerance of high levels of uncertainty as
individuals in this country are oriented toward institutional rules and laws. LTO is the
temporal dimension of the individual’s decision-making. A high score means that people of a
country weave a good network of relationships with the financial ecosystem in order to
preserve them in the future. ND expresses the degree of optimism and comfort perceived by
the people of a country.
It is the latter two dimensions that we study in this paper since they have been ignored by
previous research (Boolaky and O’Leary, 2011; Boolaky et al., 2013; Boolaky and Cooper,
2015; Rafiee and Sarabdeen, 2012; Nurunnabi, 2017). In fact, initially, Hofstede’s (1984) model
contained four cultural dimensions, namely PDI, MAS, IDV and UAI. By expanding the
database, the model of Hofstede et al. (2010) adds two other dimensions which are LTO and
ND. The six dimensions reflect the preferences of one situation over another that differentiate
one country from another (Espig et al., 2021).
Rafiee and Sarabdeen (2012) provide a review of studies that examine the effect of cultural
differences, according to the Hofstede’s (1984) model, on the level of adherence to good
governance practices in emerging countries. They argue that the weakness of governance
mechanisms in these countries is partly explained by high levels of PDI. In these countries,
workers fear conflict with managers and execute their decisions (Hofstede, 1984). According
to Rafiee and Sarabdeen (2012), these countries are characterized by a low level of IDV insofar
as corporate leaders and shareholders are influenced by traditional authorities, roles and
social obligations. This is in contrast to developed countries having a high level of IDV.
Decision-makers think individually before any investment act and are less influenced by any
group decision. The demand for information is high as well as the level of transparency. In
terms of UAI and MAS, emerging countries are less tolerant to uncertainty. Managers,
shareholders and investors are conservative and less accepting the risky projects. MAS is
prevalent in these countries. Most managers and directors are men. Khlif (2016) concurs with
these findings by outlining the results of 35 studies during the period 1995–2015.
Nurunnabi (2017) shows that cultural diversity affects board efficacy. He finds that while
corporate ethics (CE) act positively and significantly on governance, RDI as well as UAI
reduce board efficacy.
De Villiers and Dimes (2021) explain that governance is related to culture. Thus, when
employees view the leader’s behavior as trustworthy and ethical, they are better aligned with
decisions and improve company performance. Moreover, corporate scandals are caused by
unethical executive behavior.
Liu and Wu (2020) link cultural diversities to the legal system and fraud. They show that
in countries with high levels of PDI and MAS, managers follow accounting rules and are less
involved in earnings management. Auditors tend to follow accounting and auditing
regulations and are less subject to their clients’ preferences. When the level of IDV is low,
managers look out for the stakeholders’ interests and stand together in case of fraud. As a
result, the level of transparency is reduced. A high level of LTO accentuates management’s
PRR commitment to the best allocation of resources and to setting strategic objectives as a priority.
In this situation, earnings management is less practiced, since improving forecasted results is
more important than focusing on current results. Indulgent societies spend more time on
social welfare, while restricted communities believe more in regulation through the
enforcement of strict standards. Leaders in indulgent countries ensure a comfortable work
environment to improve performance.
In a specific context related to the countries’ innovation, Espig et al. (2021) show in a
sample of 71 countries during 2015–2018 that high levels of IDV, LTO and ND propel
innovation. Low levels of PDI and UAI reduce innovation. Female gender dominance is
positively and significantly related to innovation.
Recently, in a particular study, Baatwah et al. (2021) have examined the effect of tribal
culture, which was measured by tribal directors on financial reporting quality on a sample of
119 firms listed on the Oman capital market during 2007–2014. They find that tribal culture
negatively impacts financial reporting quality, which is approximated by earnings
management. This tribal culture negatively moderates both the effectiveness of internal
governance mechanisms and audit quality. Based on the results of the previous studies, we
formulate the hypotheses as follows:
H2. The higher the LTO, the higher is the efficacy of the board.
H3. The higher the ND level, the higher is the efficacy of the board.

3. Methods and data

3.1 Sample
The empirical analysis in this interdisciplinary research builds from the premise that the
efficacy of corporate boards is affected both by formal factors, including possibly the SARS,
and by informal factors, such as LTO. It was decided to test the research hypotheses on
developing countries, as this type of countries has drawn little attention in the good
governance literature as regards to board efficacy. This subset encompasses a mixture of
developing nations distinguished by accounting and auditing regulations, cultural
dimensions, religion and geography. The Hofstede Insights website covered 118 countries
worldwide. In total, 80 of those countries are developing ones. The sample was restricted to 54
developing countries over the period 2007–2016 (see Appendix) due to the lack of
complete data.

3.2 Dependent variable

In this interdisciplinary research, the explained variable is represented by the Efficacy of
Corporate Boards (ECB). This is a continuous variable that varies between 1 (extremely weak)
and 7 (extremely strong) capturing perceptions about the extent to which managers are
accountable to boards of directors and investors. Country-year scores for board efficacy are
gathered from the World Economic Forum (2016).

3.3 Independent variables

The key test variables are the SARS, LTO and ND. We follow previous research (e.g.
Nurunnabi, 2017) by using CEOs’ perceptions about the SARS as a measure of a country’s
regulatory accounting environment. The Executive Opinion Survey of the World Economic
Forum (2016) asked firm respondents, “In your country, how strong are financial auditing
and reporting standards? [1 5 extremely low; 7 5 extremely high].” As mentioned earlier, two
cultural dimensions were then employed to check if they were strong predictors of the
corporate boards’ efficacy. These cultural dimensions were not considered in the study of
Nurunnabi (2017). Each nation is assigned a score between 0 and 100 for each cultural value. Accounting
Data on these cultural values are collected from Hofstede Insights: https://www.hofstede- regulation in
insights.com/country-comparison/.
developing
countries
3.4 Control variables
Given the findings of the study by Nurunnabi (2017), we consider the following set of control
variables:
(1) The remaining four Hofstede’s cultural dimensions: PDI, IDV, UAI and MAS.
(2) CE: This country-year index, gathered from the World Economic Forum (2016),
captures perceptions about the CE of companies (ethical conduct in interactions with
other companies, public officials and politicians). It ranges from 1 (extremely poor) to
7 (excellent among the best in the world).
(3) RDI: This variable, obtained from the Pew Research Center (2014), is based on the
scores in “Global Religious Diversity”. It varies between 0 and 10, where a higher
score indicates that a country’s population is equally distributed among the eight
major religious groups:

Hinduism;

Buddhism;

Islam;

Folk or traditional religions;

Judaism;

Christianity;

Other religions and

The religiously unaffiliated.

3.5 Model specification

To test potential relationships between accounting regulatory environments, LTO, ND and
board efficacy across nations, we estimate the following pooled OLS model:
ECBi; t ¼ γ 0 þ γ 1 SARSi; t þ γ 2 LTOi þ γ 3 NDi þ γ 4 PDIi þ γ 5 IDVi þ γ 6 MASi þ γ 7 UAIi
þ γ 8 RDIi þ γ 9 CEi; t þ εi; t

Where
ECBi,t 5 board efficacy score for country i in year t;
SARSi,t 5 strength of auditing and reporting standards score for country i in year t;
LTOi 5 long-term orientation score for country i;
NDi 5 indulgence score for country i;
PDIi 5 power distance score for country i;
IDVi 5 individualism score for country i;
MASi 5 masculinity score for country i;
PRR UAIi 5 uncertainty avoidance score for country i;
RDIi 5 religious diversity score for country i;
CEi,t 5 ethical behavior of firms score for country i in year t and
εi,t 5 random error term for country i in year t.
The concept of our research model is drafted in Figure 1.

4. Empirical results and analysis

4.1 Summary statistics
Summary statistics for the variables considered in this research from a cross-section of 54
countries are reported in Table 1. Significant variation exists with regard to board efficacy
levels among developing countries. The efficacy of corporate boards in a country ranges from
2.64 to 5.64 with a mean of 4.37 during the ten-year period. The lowest board efficacy score
was found in Angola for the year 2014, while the highest score was found in Zambia for the
year 2007. The first independent variable has a reasonable range of variation. SARS has a
mean of 4.36 and ranges from 2.33 to 5.86. Moreover, Table 2 shows that the culture
dimensions lie between 0 and 100, with means of roughly between 27 and 75. The highest RDI
score was found in Vietnam (7.7), while the lowest was found in Morocco (0). CE score in our
sample averaged 3.74 and this control variable ranged from 2.38 to 5.56.

4.2 Correlation matrix

Table 2 indicates that there are a number of significant correlations between board efficacy
and the interest variables. Specifically, there are positive and significant correlations
(p < 0.01) between ECB and SARS (r 5 0.703) and ECB and ND (r 5 0.167). This constitutes an
interesting result which suggests that cultural factors are essential and should be examined
along with formal institutional factors in “hybrid models” of board efficacy across countries.
These significant correlation coefficients provide a preliminary support for H1 and H3 of this

H2 H1

H3

Figure 1.
Research model
Source(s): Research data
Variables Mean SD Min Max Median Skewness Kurtosis N
Accounting
regulation in
ECB 4.37 0.42 2.64 5.64 4.37 0.14 3.45 509 developing
SARS 4.36 0.57 2.33 5.86 4.31 0.10 2.95 509
LTO 39.65 23.16 4 87 34 0.41 2.03 509 countries
ND 43 24.40 0 100 38 0.62 2.58 509
PDI 75.12 12.76 46 100 75 0.26 2.50 509
IDV 26.90 12.16 10 80 25 1.71 8.04 509
MAS 48.78 13.14 15 88 46 0.60 3.81 509
UAI 71.38 19.11 30 98 80 0.60 2.12 509
RDI 2.9 2.18 0 7.7 2.3 0.56 2.07 509
CE 3.74 0.57 2.38 5.56 3.7 0.70 3.75 509
Note(s): ECB 5 Board efficacy; SARS 5 strength of auditing and reporting standards; LTO 5 long-term
orientation versus short-term orientation; ND 5 indulgence versus restraint; PDI 5 power distance; IDV 5
individualism versus collectivism; MAS 5 masculinity versus femininity; UAI 5 uncertainty avoidance; RDI
5 religious diversity and CE 5 corporate ethics Table 1.
Source(s): Authors’ results Summary statistics

research. The highest correlation coefficient in Table 2 is below 0.8. No problem of

multicollinearity is found (Gujarati, 2003).

4.3 Hypothesis testing

Table 3 reports the pooled OLS regression results for the effects of the SARS and cultural
values of ND and LTO on board efficacy in developing countries. The expected sign for the
abovementioned two cultural dimensions and for the SARS is positive.
Table 3 shows that the model is highly significant at the one percent level (F-
statistic 5 68.91), while the independent and control variables explain a relatively high
percentage of the variations in board efficacy (adjusted R2 of 0.55).
For H1, stronger accounting and auditing standards positively relate to board efficacy as
anticipated (γ 1 5 0.490, t-statistic 5 15.62). This result is in line with earlier research (La Porta
et al., 1998; Boolaky and Cooper, 2015; Nurunnabi, 2017). For instance, Nurunnabi (2017) finds
that the SARS influence the efficacy of corporate boards in 69 countries.
In addition, Table 3 shows that the coefficient on LTO (γ 2 5 0.002) is significant at the
five percent level, while the coefficient on ND (γ 3 5 0.003) is significant at the one percent
level. These two cultural dimensions are positive predictors of board efficacy, so H2 and H3
are supported. These findings evidence that the board efficacy model constructed by
Nurunnabi (2017) could suffer from an omitted variables problem. These are important
empirical results, because they demonstrate that when studying board efficacy in
developing countries, predictors pertaining to LTO and ND should be considered together
with the SARS.
Hypotheses examination is followed by a discussion of control variables. For the cultural
control variables, PDI significantly increases the level of board efficacy (γ 4 5 0.003;
t-statistic 5 2.58). IDV has a weak and negative effect on board efficacy (γ 5 5 0.002;
t-statistic 5 1.73). Results show that MAS, UAI and RDI do not significantly influence board
efficacy. Table 3 also reports a significant association between CE and board efficacy across
developing countries. The regression coefficient for CE is positive and highly significant
(γ 9 5 0.088). Thus, consistent with the study of Nurunnabi (2017), higher levels of CE are
associated with higher levels of board efficacy.
In sum, our regression results are in line with the research hypotheses postulated in this
study, providing the first empirical evidence for the impact of the regulatory accounting
 PRR

Table 2.
Pearson correlations
ECB SARS LTO ND PDI IDV MAS UAI RDI CE

ECB 1.00
SARS 0.703*** 1.00
LTO 0.007 0.090** 1.00
ND 0.167*** 0.121*** 0.607*** 1.00
PDI 0.025 0.169*** 0.406*** 0.161*** 1.00
IDV 0.050 0.246*** 0.075* 0.187*** 0.286*** 1.00
** ***
MAS 0.093 0.200 0.018 0.061 0.065 0.287*** 1.00
UAI 0.122*** 0.100** 0.220*** 0.101** 0.026 0.067 0.148*** 1.00
RDI 0.087** 0.057 0.206*** 0.084* 0.135*** 0.082* 0.086* 0.391*** 1.00
CE 0.512*** 0.597*** 0.006 0.022 0.012 0.068 0.101** 0.069 0.051 1.00
Note(s): *, ** and *** indicate significance at the 10, 5, and 1% levels, respectively. See Table 1 for variable definitions
Source(s): Authors’ results
 ECB
Accounting
regulation in
SARS 0.490 (15.62)*** developing
LTO 0.002 (2.28)**
ND 0.003 (3.63)*** countries
PDI 0.003 (2.58)**
IDV 0.002 (1.73)*
MAS 0.001 (0.62)
UAI 0.001 (1.01)
RDI 0.011 (1.47)
CE 0.088 (2.94)***
_cons 1.601 (9.75)***
F statistic 68.91
Prob > F 0.000
Adjusted R-squared 0.55
No. of observations 509
Note(s): *, ** and *** indicate significance at the 10, 5, and 1% levels, respectively. See Table 1 for variable
definitions Table 3.
Source(s): Authors’ results OLS regression results

environment and the cultural dimensions of LTO and ND on board efficacy in developing
countries from 2007 to 2016.

4.4 Additional analyses

In the next stage, the relative strength of the three independent variables (i.e. SARS, LTO
and ND) within the model was estimated using the standardized beta coefficients. The
higher the value of the standardized beta coefficient, the greater is the impact of that
independent variable on the explained variable (board efficacy). As depicted in Table 4, the
standardized betas imply that the SARS has the largest impact upon board efficacy,
followed by ND versus restraint, CE and then LTO versus short-term orientation. Based on
these findings, it is suggested that policymakers and regulatory authorities should
concentrate on the independent variable which has the largest standardized beta coefficient
of 0.658, SARS, to affect board efficacy. These findings also show that, in addition to the

ECB

SARS 0.658***
LTO 0.106**
ND 0.151***
PDI 0.091**
IDV 0.060*
MAS 0.020
UAI 0.036
RDI 0.054
CE 0.117***
Adjusted R-squared 0.55
No. of observations 509
Note(s): *, ** and *** indicate significance at the 10, 5 and 1% levels respectively. See Table 1 for variable Table 4.
definitions OLS
Source(s): Authors’ results standardized betas
PRR enforcement of the accounting and auditing regulations, it is important to take into account
the cultural dimensions of ND and LTO to explain board efficacy. These findings clearly
support the idea that national culture should be embedded in codes of good governance
around the world. The current research is one of the first steps toward a deeper
understanding of inter-connection between regulatory accounting environment, national
culture and board efficacy.

5. Conclusion
Studying the corporate governance of developing countries context is interesting since it is
known by its weak practices notably the inefficacy of the board of directors and the lack of
enforcement system, transparency and availability of public information (Millar et al., 2005;
Okpara, 2011; Rafiee and Sarabdeen, 2012). It is important to take a closer look at the factors
that impede the successful implementation of these practices.
In this study, we explore from a global perspective the impacts of the accounting regulation’s
strength and cultural values on board efficacy in developing countries from 2007 to 2016.
Compared to previous research, we are the first to study, through a conceptual model, the
relationship between an important formal factor as regulatory accounting environment and board
efficacy in a little explored research context (Boolaky and O’Leary, 2011; Boolaky et al., 2013; Avram
et al., 2015; Boolaky and Cooper, 2015; Nurunnabi, 2017). We integrate in this model two important
Hofstede’s cultural values that have been omitted previously, the LTO and the ND values.
Regression results from a cross-sectional sample of 509 years observations using 54
developing countries during 2007–2016 show that strong enforcement of regulatory
accounting environment enhances board efficacy as predicted in the first hypothesis. This
finding shows that the strength of enforcement of accounting and auditing standards
improves the efficacy of the board by reducing management’s opportunistic behavior,
including fraud, increasing the level of mandatory disclosure and reducing the level of
auditor engagement risk (Avram et al., 2015; Nurunnabi, 2017). Besides, Hofstede’s cultural
values affect corporate governance in developing countries. A commitment to LTO and a
high degree of ND improves board efficacy. In this sense, the major concern of management is
the best allocation of resources and the setting of strategic goals rather than a focus on
current results. ND, another little-studied cultural value, improves board efficacy because it
provides a peaceful and comfortable working environment. These two results confirm,
respectively, our second and third hypotheses. The results found are robust since they are
maintained after using the standardized beta coefficients. The control variables, namely PDI,
IDV and CE influence the board efficacy, consistent with the results of previous studies
(Boolaky and O’Leary, 2011; Rafiee and Sarabdeen, 2012; Boolaky et al., 2013; Avram et al.,
2015; Boolaky and Cooper, 2015).
Ultimately, through an empirically tested model, this study has the merit of shedding light
on the factors that explain the weakness of governance practices, particularly the efficacy of
the board in developing countries. To restore investor confidence and increase the credibility
toward firms, these countries are called upon to integrate compliance with accounting and
auditing regulations combined with cultural values in the implementation of good
governance practices. Thus, investors can choose the country that best applies good
governance practices and accounting regulations. Cultural diversity should be taken into
consideration in implementing practices that improve board effectiveness to reduce
conflicting board relationships for each developing country. In the same vein, future
research should focus on how to apply strongly accounting and auditing standards and to
explore other cultural factors in the conception and the implementation of corporate
governance practices that are specific to developing countries.
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Appendix
The 54 countries included in the study
Albania, Algeria, Angola, Argentina, Armenia, Azerbaijan, Bangladesh, Bolivia, Bosnia and
Herzegovina, Brazil, Bulgaria, Burkina Faso, Cape Verde, Chile, China, Colombia, Croatia, Dominican
Republic, Egypt, El Salvador, Georgia, Ghana, Hungary, India, Indonesia, Iran, Jordan, Kazakhstan,
Lebanon, Malaysia, Mexico, Moldova, Montenegro, Morocco, Mozambique, Nigeria, North Macedonia,
Pakistan, Paraguay, Peru, the Philippines, Romania, Russian Federation, Saudi Arabia, Serbia,
Tanzania, Thailand, Trinidad and Tobago, Turkey, Ukraine, Uruguay, Venezuela, Vietnam and
Zambia.

Corresponding author
Kais Baatour can be contacted at: [email protected]

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