To Reveal or Not to Reveal? The Influence of Cultural Secrecy on Discretionary Disclosure Decisions

Abstract

Prior studies on the relationship between culture and discretionary disclosure fail to account for concurrent managerial incentives to reveal private information to the capital market. Our study extends the literature by investigating whether these managerial incentives offset the cultural influence on managers’ discretionary disclosure decisions. To this end, we exploit a setting in which managers have the discretion to influence both the quantity and quality of disclosure and can thereby either conceal or reveal private information. For a sample of European firms, we find that despite incentives to reveal private information, managers’ culturally determined preference for secrecy leads them to provide a low quantity as well as a lower quality of disclosure. Our results are robust to several sensitivity checks and demonstrate the relative importance of cultural influence on discretionary disclosure decisions.

Board gender diversity and corporate social responsibility (CSR) disclosure in different disclosure environments

“…Results show that firms from countries with a high level of secrecy provide a lower CSR disclosure level than those from countries with lower secrecy scores; thus, the research hypothesis is supported. Accordingly, empirical implications of cultural secrecy on voluntary disclosure practices (specifically CSR disclosure in our case) align with similar research settings (Blanc et al, 2019; Göttsche et al, 2020). In other words, it can be said with a certain level of significance that cultural secrecy is associated with a lower quantity of CSR disclosure.…”

“…Their findings support the argument that anti-corruption disclosure is higher in countries with lower levels of secrecy. Similarly, Göttsche et al (2020) focus on the discretionary aspects of segmental disclosure.…”

“…Their findings support the argument that anti‐corruption disclosure is higher in countries with lower levels of secrecy. Similarly, Göttsche et al (2020) focus on the discretionary aspects of segmental disclosure. They argue that managers from countries with high cultural secrecy provide a low quantity of segmental disclosure.…”

Secretive cultures and non-performing loans of microfinance institutions

“…Prior literature also complements Gray (1988) by documenting weak disclosure environment in secretive cultures (Braun and Rodriguez, 2008;Hope et al, 2008). Göttsche et al (2020), for example, document that culturally determined preferences for secrecy deter managers to provide high quality of disclosure. Similarly, Blanc et al (2008) also document lower propensity to disclose information in secretive cultures.This paper maintains that higher information asymmetries associated with secretive cultures have signi cant implications for the loans extended by MFIs to their clients.…”