Regulatory accounting environment, cultural values and board efficacy in developing countries

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 Hofstedeet 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 period of time, highlights the governance characteristics of this context and strengthens the internal and external validity of the study.