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This research examines the interplay between institutional frameworks, social capital, and financial reporting practices in emerging economies. Utilizing data from 2,509 corporations across 22 developing nations spanning 2000-2017, we explore the determinants shaping these markets’ financial landscapes. Our investigation scrutinizes how regulatory oversight, transparency mandates, shareholder protections, and financial analyst coverage influence the financial integrity of emerging markets. Furthermore, we assess the potential of societal trust as a moderating factor in attenuating economic disparities’ effects. Our findings underscore the critical role of robust institutional structures in fostering truthful and transparent financial disclosures. However, societal trust alone proves insufficient in this regard. These results emphasize the necessity for well-established formal institutions to safeguard the veracity and reliability of corporate financial communications. This study contributes to the existing body of knowledge by providing empirical evidence on the nexus between institutional environments, social trust, and the prevalence of earnings management. It offers valuable insights for policymakers and practitioners seeking to enhance corporate governance standards, particularly within the context of developing economies.
Wil Martens (Wed,) studied this question.