Culture clash or collaboration? Unraveling the role of hierarchical organizational culture in International Financial Reporting Standards adoption

Abstract

This research study investigates the influence of organizational culture on the quality of earnings when adopting International Financial Reporting Standards (IFRS). The results reveal a positive association between hierarchical organizational culture and earnings quality, indicating that organizations with strong hierarchical cultures tend to generate high‐quality financial reports during the implementation of IFRS. This finding aligns with the principles of contingency theory, which suggests that hierarchical cultures are particularly effective in ensuring accurate and reliable financial reporting, especially in situations characterized by high uncertainty or complexity. Based on these findings, the study recommends the cultivation of a favorable organizational culture to maximize the benefits of IFRS in terms of higher earnings quality under the new accounting standards. By nurturing a hierarchical culture that prioritizes accuracy, accountability, and compliance, organizations can enhance their ability to produce reliable financial reports and effectively meet the requirements of IFRS. Overall, this research contributes valuable insights into the relationship between organizational culture, IFRS adoption, and earnings quality. The practical implications derived from these findings emphasize the significance of fostering a supportive organizational culture to harness the positive impact of IFRS on earnings quality.