Shiny Piggy Bank : [HWU Assignment] CRITICALLY APPRAISE GRAY'S THEORETICAL FRAMEWORK OF ACCOUNTING VALUES

Introduction

There are more than 7 billion people in the world, increasing as speaking, and if taking the view that each individual is his/her universe, the cluster is enormously huge. Basically, these people scatter around the globe, geographically separated into many different groups and thus developed different life styles and histories. The literature calls these differences 'culture'. Efforts have been made to explain how these differences would affect people's thoughts, eventually actions. Throughout the long-term continuously searching for answers, there are two researchers' (Hofstede and Gray, respectively) works that are mostly discussed and criticised, i.e. their works stimulate more ideas. Both Hofstede and Gray devoted into this particular area, attempting to transform the intangible values to written standards, and the former even provided stand ground for the later. In order to analyse and criticise Gray’s theory, this article starts with examining Hofstede’s theory because Gray’s work is based on Hofstede’s assumptions. If the premise is false, the conclusion followed by will be certainly misleading.

This article is organised as follow. In section 2, the very specific two researchers’ works are briefly summarised. Criticisms about Hofstede’s and Gray’s works, whether separately or jointly, are outlined and analysed in section 3. Further suggestions for improving the model are abstracted in section 4. Finally, the conclusion wraps up the discussions.

The formation Hofstede-Gray's theory

What is Hofstede's theory?

As an organisational psychologist, Hofstede (1984, 1991) tried to identify the scopes of culture and separated them into different levels (symbols, heroes, rituals and values) of culture. Culture, in his definition, is the collective programming of the mind which distinguishes the members of one human group from another (Hofstede, 1984, 1991). He was definitely not the first one who tried to explicate the definition of culture and certainly not the first one who provided a framework of it. By surveying the large cross-country organisation, he then developed four cultural dimensions of values, the core of culture, and used these dimensions to categorised 50 countries and three geographic clusters of countries. Over the years, accounting research is one of the numerous disciplines which utilize Hofstede's classification and quantification of cultural differences (Baskerville, 2003, pp. 1).

What is Gray's theory?

Gray’s theory is considered an extension of Hofstede’s theory, identifying the four subcultural dimensions (professionalism, uniformity, conservatism and secrecy) or accounting values. Gray (1988) tried to tie Hofstede’s four dimensions of social values to accounting values by defining these factors with positive or negative relationship, e.g. positive relationship meaning that the higher the individualism, the higher the professionalism; negative relationship meaning that the lower the power distance, the higher the professionalism. In addition, Gray took further step to build on the link between his accounting values and real world accounting systems based on his previous hypothesis. He assumed that professionalism and uniformity affected the authority and enforcement, that conservatism influenced measurement practices, and that secrecy impacted information disclosure.

Disagreement about Hofstede-Gray's theory

Criticisms against Hofstede's theory

Hofstede (1984) built his theory through case study among IBM employees over the period 1968-1972 at which the US culture gaining its influence globally. The survey process generated 117,000 responses from 88,000 employees over 66 countries (Baskerville, 2003, pp. 1). Credits must be given for digesting and interpreting such large amount of data. However, the results and conclusions may be biased if the assumption was misleading at beginning. Validity is also an issue of Hofstede's theory. McSweeney (2002) criticised Hofstede's measure methodology as 'allegedly illustrative stories' because Hofstede claimed that national institutions, events and artefacts were consequences of national cultures, the causal relation which didn't exist. If the aim is to uncover the mystery behind national culture, perhaps both internal and external factors should be included as the researchers set up variables for testing perspectives of individuals, organisations, societies and nations.

Baskerville (2003) challenges the foundations of Hofstede's theoretical assumptions by indicating the obviously biased preferences over particular scholars' point of view, i.e. the generalisation of the theory based on very doubtful ground. According to Baskerville's argument (2003, p.6), Hofstede did not adequately address two important problems prompted by Goodenough (1964, p. 8): classification and definitions; and the problem of sampling and the units of comparison, the problems any study of cross-cultural comparisons has to address. Nevertheless, Hofstede replied this argument in his later paper in 2003 (Hofstede, 2003, p. 813) that he only saw his work as 'exploratory research, not as a finished theory', suggesting the irrelevance of Baskerville's arguments to cross-cultural accounting research. In fact, Hofstede did carry on extending his research in cultural dimensions and make some implements later as emerging markets arising.

One of the criticisms to Hofstede's study argued that the sample case was out of date and needed to reconstruct an updated one. It is disputable that the case study has over forty years history now, getting older as mentions, and some conditions had changed significantly over these years. However, certain underlying norms with good-old-merit characteristics might not change with time. One way of testing the theory is to carry out a whole scale survey again with similar scope of corporations, filtering the unchanged parts and scanning for the new parts. The long-term research might also take quite some time and manpower to interpret and analyse, which is not very economical. Baydoun and Willett (1995) suggested that it was better use Hofstede's theory as an implied definition, adjusting along the situations necessarily.

Despite the criticisms, Hofstede’s work has been used in many empirical studies not only in accounting but also across the whole range of social science discipline, for his work providing quantitative measurement for other researchers as input in their statistical analysis and testing (Roberts, Weetman and Gordon, 2008). Since it's very difficult to numerate quality related characteristics, Hofstede's work really allows more ideas and thoughts to proceed and to prosper. For a literature with such a broad area of definition, the researchers might continue wandering and exploring for a while before they reach the core of the issue. Hofstede's work inspired another researcher in accounting field, Sidney J. Gray, to develop his accounting values and broaden the relations connected to accounting practices, the link that demanded initial agreement of cultural dimensions derived from Hofstede's proposition.

Criticisms against Gray's theory

According to Gray's (1988) paper, the hypotheses he made were constructed in an inductive approach, like a proposal, without presenting empirical evidence. Criticism about the lack of evidence was later complemented by further studies done by some researchers who intended to prove or disprove Gray's theory.

Salter and Niswander (1995) used Gray's hypothesis and tested them with a sample of 29 countries, building up measurement indicators for accounting values, so the relationship between social values and accounting values could be recognised. The results of the study showed that there was 'significant relationship between Gray's accounting values and Hofstede's cultural constructs' (Salter and Niswander, 1995, pp. 391), which wasn't surprising at all because there must be predetermined relationship between culture as a whole and its subcultures. However, if looking into each independent cultural component, these cultural variables were not tightly related as Gray presumed. This finding suggests either Gray had overlooked some key indicator quality or he just looked at the wrong direction.

One of the criticisms is the false assumption that Gray’s theory proposed. Some researchers claimed that Gray’s theory didn’t prove the correlation between societal values and accounting values, let along the connection between accounting values and accounting systems. Baydoun and Willett (1995) demonstrated a case study using Hofstede-Gray’s theory as implied definition, examining cultural relevance in the accounting systems in Lebanon and France, respectively. In their examination (Baydoun and Willett, 1995) with the accounting system of France, according to Hofstede-Gray's framework, certain cultural characteristics leading to the assumptions of accounting values and accounting systems didn’t fit with the observation in reality, indicating that either incorrect question asked or fallacious theory used.

However, Chanchani and Willett (2004) found that with certain level of adaption and reinterpretation the results from accounting values survey done in New Zealand and India showed support of Gray's accounting values, and they proposed that further quantitative accounting values survey should be conducted. This paper showed that the literature attempted to optimise and measure the accounting values, and carried the questionnaire through a more theoretical basis rather than empirical one, for testing the validity of Gray’s theory.

Followed up, Doupnik (2008) applied the cultural dimensions to examine whether there is a connection between cultural differences and earnings management; the results supported the connection, but Gray's accounting values dimensions failed to explain the cultural determined measure practices, proposing the insufficiency of Gray's classifications of accounting values. The unexplained part of the result (Doupnik, 2008) hints that there's fifth accounting value 'stability', differences among countries presenting accounting information that is stable over time. Explicitly, there's blind spot of Gray's theory that demands more aspects reckoned.

Without a doubt that Gray's hypotheses did spark a lot of attention, Heidhues and Patel (2011) stated that Gray's theory was undoubted accepted and applied to international accounting research by subsequent researchers, leading to increased authority and popularity, the employment which required more discretion when utilising.

Salter and Lewis (2011) tested Gray’s theory by using actual reported data extracted from the SEC Form 20-F and found that the cultural variable relate to differences in accounting measurement practices. This study filled the gap between real figures form regulatory and quantified questionnaires led by academy since there was no such type of examination ever made use of actual figures. Indeed, if more aspects considered, the following researchers might be able to amend or enhance previous assumptions, and form a more thorough and fit-for-all theory.

Suggestions for the Hofstede-Gray's theory

There are some researchers trying to make improvement of the Hofstede-Gray's theory. According to the paper of Doupnik & Tsakumis (2004), the authors made suggestion that future research should focus on individual accountants’ behaviour with respect to application of financial reporting rules using Gray’s framework. This opinion suggests that the term ‘culture’ may be seen as one big cluster of individual behaviour within the group, still been affected by each individual who constitutes it. To further analyse the causal relations inside any organisations, the researchers must start with the basic units of organisations, i.e., accountants who work in the organisation. The status of mind decides the actions carried out, and thus merges into a big cluster: culture.

Suggestions made by Chanchani and Willett (2004) urging for practical angles were followed up. Other researchers (Heidhues and Patel, 2011) recommend that accounting research should focus on critically examining the contextual environments of countries rather than measurements, quantification, simplification, and categorisation.

Conclusion

The literature has been trying to find out what causes differences between accounting systems among different countries for a long time. One obvious explanation is the cultural factor. The term 'culture' has a very broad meaning and thus very difficult to set a boundary for. Many efforts have been devoted to explore this area by researchers, standardising the immeasurable characteristics and generalising the observations. Among those research papers, the most discussed one was carried out by Geert Hofstede, an organisational psychologist, who conducted his research by surveying employees within one large international corporation and constructed a theory based on the findings. Hofstede's work has provided a standing ground for following researchers because his attempt to quantify quality-related traits enabled other researchers use as input of data or statistical analysis. However, where there is compliment, there is complaint. Many scholars argued that Hofstede's theory was invalid, fallacious-assumed and ill-constructed, and out of date. With such a controversial situation discussed, fully accepted and followed by Gray's work, built on Hofstede's cultural value dimensions, Gray tried to connect the cultural values with accounting values, from general to specific, and in the end link accounting values to accounting systems. If Hofstede's theory proved to be invalid, Gray's theory would definitely be invalid because the former work was the underpinning of the later. Even if Hofstede's theory wasn't overruled, debates still went on for Gray's theory lacking empirical evidence, misleading assumptions, and overlooking key factors. On the other hand, credits must be given to these two researchers who opened a new page in international accounting research. Along with criticisms, other researchers also made some suggestions to revise their theory and advise discretion for further research or application.

Reference list

Baskerville, R. (2003) 'Hofstede never studied culture', Accounting Organizations And Society, Vol. 28, No. 1, pp. 1-14.

Baydoun, N. and Willett, R. (1995) ‘Cultural Relevance of Western Accounting Systems to Developing Countries’, ABACUS, Vol. 31, No. 1, pp. 67-92.

Chanchani, S. and Willett, R. (2004) 'An empirical assessment of Gray's accounting value constructs', International Journal Of Accounting, Vol. 39, No. 2, pp. 125-154.

Doupnik, T. S. (2008) 'Influence of Culture on Earnings Management: A Note', Abacus, Vol. 44, No. 3, pp. 317-340.

Doupnik, T, & Tsakumis, G (2004) 'A CRITICAL REVIEW OF TESTS OF GRAY'S THEORY OF CULTURAL RELEVANCE AND SUGGESTIONS FOR FUTURE RESEARCH', Journal Of Accounting Literature, Vol. 23, pp. 1-48.

Goodenough, W. H. (1964) Explorations in cultural anthropology—essays in honor of George Peter Murdock, New York: McGraw-Hill Book Company.

Gray, S. J. (1988) ‘Towards a Theory of Cultural Influence on the Development of Accounting Systems Internationally’, ABACUS, Vol. 24, No. 1, pp. 1-15.

Heidhues, E. and Patel, C. (2011) 'A critique of Gray's framework on accounting values using Germany as a case study', Critical Perspectives On Accounting, Vol. 22, pp. 273-287.

Hofstede, G. (1984) Culture's consequences: international differences in work-related values, Beverly Hills u.a.: Sage

Hofstede, G. (1991) Cultures and organizations: software of the mind, McGraw-Hill

Hofstede, G. (2003) 'What is culture? A reply to Baskerville', Accounting, Organizations And Society, Vol. 28, pp. 811-813

McSweeney, B. (2002) ‘Hofstede's model of national cultural differences and their consequences: A triumph of faith - a failure of analysis’, Human Relations, Vol. 55, No. 1, pp. 89-118.

Roberts, C. B., Weetman, P., and Gordon, P. (2008) International corporate reporting: A comparative approach, 4th ed, Pearson Education.

Salter, S. B. and Lewis, P. A. (2011) ‘Shades of Gray: An empirical examination of Gray's model of culture and income measurement practices using 20-F data’, Advances In Accounting, Incorporating Advances In International Accounting, Vol. 27, pp. 132-142.

Salter, S. B. and Niswander, F. (1995) 'CULTURAL-INFLUENCE ON THE DEVELOPMENT OF ACCOUNTING SYSTEMS INTERNATIONALLY - A TEST OF GRAY [1988] THEORY', Journal Of International Business Studies, Vol. 26, No. 2, pp. 379-397.

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