Wong, SP 2012, 'The impact of culture on risk management disclosures : an exploratory study of international banks', DBA thesis, Southern Cross University, Lismore, NSW.
Copyright SP Wong 2012
This research study examines the risk management disclosure practices of financial institutions and explores the impact of national cultural differences on risk management disclosures.
Financial institutions, especially banks, are required to disclose their risk management policies in their published annual reports. Cultural differences could have a significant impact on banks’ risk management disclosure practices. Hofstede’s (1980) study reveals four underlying cultural value dimensions: individualism, masculinity, power distance and uncertainty avoidance. Gray’s (1988) study reveals there are close relationships between these cultural dimensions and the secrecy/transparency that organisations have about their policies. This study attempts to integrate the concepts of Hofstede and Gray. It explores the differences between Chinese and Western financial institutions in risk management disclosure practices.
With regard to Hofstede’s (1980, 2001) cultural studies, Western financial institutions, which align with Western culture, have low levels of power distance and uncertainty avoidance but high levels of individualism and masculinity. Association of Gray’s (1988) secrecy/transparency study with Western culture suggests that Western financial institutions prefer high levels of risk management disclosure intensity. Western financial institutions appear to be open and transparent about disclosing their risk management policies.
With regard to Hofstede’s (1980, 2001) cultural studies, Chinese financial institutions, which align with Chinese culture, have high levels of power distance and uncertainty avoidance but low levels of individualism and masculinity. Association of Gray’s (1988) secrecy/transparency study with Chinese culture suggests that Chinese financial institutions preferlow levels of risk management disclosure intensity. Chinese financial institutions seem to exercise discretion on their risk management disclosures and have a preference for confidentiality regarding their risk management policies.
The research findings support the concepts and studies by Hofstede (1980, 2001) and Gray (1988) and reveal that risk management is important for companies to achieve their goals and cultural differences could have a significant impact on risk management disclosures. This study suggests that as China grows as an economic giant, it is important for Chinese financial institutions to enhance their risk management disclosure practices as well as their transparency and competence as perceived by the international business community. This study also broadens the understanding of the association between national culture and risk management disclosure practices.