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<p>Emerging capital markets present a financial reporting paradox: weak formal governance institutions coexist with strong informal cultural norms, yet their interaction remains poorly understood. This study investigates how formal institutions (minority investor rights, legal enforcement, disclosure quality, analyst following) and informal institutions (societal trust) jointly shape accrual-based earnings management (AEM) across 19 emerging economies. Using panel data from 1,519 firms over 2007–2023, we estimate pooled OLS, quantile regression, and two-stage least squares (2SLS) models to address heterogeneity and endogeneity. Stronger investor protections, enforcement, and disclosure regimes each reduce AEM by 10–15 percentage points, confirming the effectiveness of formal governance mechanisms. Analyst following constrains manipulation only in firms with high AEM and after correcting for endogeneity. Societal trust exhibits a conditional rather than universal governance effect: split-sample analysis reveals that trust significantly reduces AEM in strong-institution environments but is statistically inactive where formal governance is weak. These findings extend agency and institutional theories by demonstrating that informal norms complement rather than substitute for formal governance, producing governance effects only where credible enforcement is already present. Policy implications highlight that the governance benefits of cultural trust are realised only alongside stringent legal frameworks and transparent disclosure systems, and cannot substitute for institutional capacity in sustaining earnings quality and investor confidence in emerging markets.</p>

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Trust, corporate governance, and the integrity of financial disclosure in emerging capital markets

  • 期刊论文

  • 发表日期：

    2026年7月11日

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  • Wil Martens

摘要

Emerging capital markets present a financial reporting paradox: weak formal governance institutions coexist with strong informal cultural norms, yet their interaction remains poorly understood. This study investigates how formal institutions (minority investor rights, legal enforcement, disclosure quality, analyst following) and informal institutions (societal trust) jointly shape accrual-based earnings management (AEM) across 19 emerging economies. Using panel data from 1,519 firms over 2007–2023, we estimate pooled OLS, quantile regression, and two-stage least squares (2SLS) models to address heterogeneity and endogeneity. Stronger investor protections, enforcement, and disclosure regimes each reduce AEM by 10–15 percentage points, confirming the effectiveness of formal governance mechanisms. Analyst following constrains manipulation only in firms with high AEM and after correcting for endogeneity. Societal trust exhibits a conditional rather than universal governance effect: split-sample analysis reveals that trust significantly reduces AEM in strong-institution environments but is statistically inactive where formal governance is weak. These findings extend agency and institutional theories by demonstrating that informal norms complement rather than substitute for formal governance, producing governance effects only where credible enforcement is already present. Policy implications highlight that the governance benefits of cultural trust are realised only alongside stringent legal frameworks and transparent disclosure systems, and cannot substitute for institutional capacity in sustaining earnings quality and investor confidence in emerging markets.