10/15/2018

Entrepreneurship
Impact of cultural diversity and
quality financial reporting on firms
performance

Submitted to: Sir Afkar Majeed

Submitted by: Habiba Kausar
Nayab Arif
Hafsa Khalid
Kainat Tahir
Department: BS-commerce 5th
Fatima Jinnah women university Rawalpindi
Positive impact of cultural diversity on firm’s performance:
Serial Author Name year Positive Results
No.
1 Gomez-Mejia,L.R. 1997 Cultural diversity positively effect on firm performance because markets are not
perfectly integrated, thus involvement in more than one national market serves
to balance out regional macro-economic trends that are less than perfectly
correlated.
2 Uzzi, B. 1997 Cultural diversity in boards positively affects firm performance because groups
composed of people from collectivist cultural traditions would display more
cooperative behavior than groups composed of people from individualistic
cultural traditions.
3 Hitt, M. A., 1997 Paper indicates that firm performance is positive. Because Product
Hoskisson, R. E diversification moderates the relationship between international diversification
and performance.

4 Kochan, T., 2003 Research paper reflects that the relationship of cultural diversity with firm
Bezrukova, K., performance is positive and cultural diversity increase the firm or business
Ely, R., Jackson, effectiveness.
S., Joshi, A., Jehn,
K 

5 Richard, O. C., 2004
Barnett, T., Dwyer,
S., & Chadwick, K
6 Roberson, Q. M., 2007
& Park, H. J
The relationship between management group diversity and firm performance is
nonlinear. It revealed that innovativeness positively and risk taking negatively
moderated.
This study demonstrate that cultural diversity positively impact on firm
performance. Economic benefits generated from diversity reputation may
primarily derive from capital rather than product markets.
7 McMahon, A. M 2010 The studies conclude that there is a significant positive correlation between
diversity and subsidiary performance. Because the similarities and differences
of individuals are valued, so that all can reach their potential and maximize
their contributions to an organization’s strategic goals and objectives. 

8 Simons, S. M., & 2011 The researched conclude that success of an organization is achieved by bringing
Rowland, K. N. new ideas, adopting cultural diversity positively affect the firm performance.

9 Simons, S. M., & 2011 The outcome of study that diversity will positive for an organization if the
Rowland, K. N. organization effectively manage and understand functional and social diversity.

10 Elsaid, A. M 2012
The study clearly indicates that it is important for any organization to
implement diversity in the organization. Because Employee performance is
surprisingly when different work force work together.

11 Brunow, S., & 2012 Significant positive effects of cultural diversity on performance. Because
Nijkamp, P emerging productivity gains are not just paid as dividend or factor rewards but
are also used to set lower prices in order to achieve higher demand.
12 Umans, T 2012 Cultural diversity have a positive effect on the firm’s performance. It has ability
to attract the best talent from a shrinking labor pool, it will save time and
money in recruitment and turnover costs.

13 Choi, B. P., Jeong, 2014 Cultural diversity have a positive influence on the Company’s performance.
J. G., & Lee, Y Because human skills and the knowledge of individual employees are
advantages that firms adopting diversity possess.
14 Leng, C. Z., 2014 The study shows that firm with better decision making by culturally diverse
&Yazdanifard, R groups and increased problem-solving capabilities, may achieve comparative
advantage over other peer groups.
15 Ayega, E. N., 2018 Cultural diversity influences organizational performance because cultural
&Muathe, S diversity in the workplace is a formidable competitive weapon in an
organization.
Negative impact of cultural diversity:

Serial Author name year Negative results

no
1 Milliken, F. J., &
Martins, L. L.
2 Jehn, K. A.,
Northcraft, G. B., &
Neale, M. A.
3 Kilduff, M., Angelmar,
R., & Mehra, A.
1996 Cultural diversity is negatively effect on firm performance. Because
work culture does not support tolerance and acceptance of differences
1999 Cultural diversity effect the firm performance because diversity decreased
satisfaction, and commitment to the group relationship conflict.
2000 Greater TMT diversity leads to more conflicts on the TMT which results in
a more time-consuming and less effective decision-making process.  

4 Von Bergen, C. W., 2002 The research shows miss management of cultural diversity negatively affect
Soper, B., & Foster, T. the firm performance, through bad relationship among employees, increase
cost of operation, decrease productivity of firm.
5 Kochan, T., 2003 Cultural diversity is negatively related to performance in business units
Bezrukova, K., Ely, with competitive organizational culture growth oriented business strategies
R., Jackson, S., Joshi,
A., Jehn, K &
Thomas, D.
6 Richard, O. C., 2004 It revealed that innovativeness positively and risk taking negatively
Barnett, T., Dwyer, S., moderated nonlinear relationship patterns for both racial and gender
& Chadwick, K. heterogeneity.
7 Adams, R. B.& 2009  The average effect of diversity on firm performance is negative. This
Ferreira, D. negative effect is driven by companies with fewer takeover defenses. The
results suggest that mandating gender quotas for directors can reduce firm
value for well-governed firms.
8 Daunfeldt, S. O., & 2012 The research paper shows that diversity in the board room found to have a
 Rudholm, N. negative effect on the firm performance the return on total assets declined.
9 Leng, C. Z., & 2014 The research conclude that, cultural diversity negatively affect the firm
Yazdanifard, R performance if diversity not manage efficiently.
10 Martin, G. C. 2014 Cultural diversity is negatively effect on firm performance by
miscommunication, creation of barriers, and dysfunctional adaptation
behaviors
11 Frijns, B., Dodd, O., & 2016 The article finding shows negative relationship between cultural diversity
Cimerova, H. and firm performance because group decision making most disruptive
processes.

Positive Impact of financial reporting quality on firm’s performance

Seria Authors name Year Findings
l no
1 Graham, J. R., Harvey, 2001 It shows positive impact providing high quality financial reporting is
C. R., & Rajgopal, S. important because it will positively influence capital providers and other
stakeholders in making their investment in the company.
2 Kaynak, H. 2003 Quality of management has positive effect on the firms performance . good
management indicates the good performance of a firm.

3 Orlitzky, M., Schmidt, F. 2003 Financial reporting quality has a positive effect on firms performance. High
L., & Rynes, S. L. Financial reporting quality reduces the risk and liquidity.

4 Beest, F. V., Braam, G. 2009 It indicates positive impact and help get better decision making when high
J. M., & Boelens, S financial reporting quality is delivered to the end users.

5 Biddle, G.C., Hilary, G., 2009 Higher financial reporting quality would have lower info asymmetries
Verdi, R. S. lower uncertainty,lower estimation risk .
6 Martínez-ferrero, j. 2014
7 Jaballah, e., yousfi, w., 2014
&ali, z. M.
8 Chiang, h., he, l. J., 2015
&shiao, c. F.
9 Lin, z., jiang, y., tang, 2015
q., & he, x
Companies that report financial statement with better info quality will
enjoy higher FP.
Prevent managers from using power for their own benefit.
Shows that companies with better quality of financial information are
associated with subsequent higher performance
Paper demonstrate positive effect and quality financial reporting will
positively influence stakeholders a faithful representation.
This paper suggests that the quality financial reporting has a positive effect
on firms performance

10 SA Ojeka 2015 It indicates positive effect firms performance quality of F.R has an
attractive effect on the investors and investors are interested in well
performing of firm.
11 Onuorah, a. C. C., Positive effect of the quality financial reporting is shown in this paper.
&friday, i. O.
2016
12 Herith,k.sss , alberqi,n. .2017 This study suggests that quality financial performance has a positive effect
on firms performance. Higher financial reporting would allow companies to
attract by making their positive NPV projects more visible to the investors.

13 Al-dmour, a., abbod, 2018 This paper indicates that the financial reporting quality is associated with
m., & al-balqa, n. non-financial performance of a firm and effects positively.it will positively
influence stakeholders
14 Jimoh, ibrahim 2018 Positively effects firms performance
 Quality of FR has an attractive effect on investor.
15 Adeyemi A. Adekunle , 2013 This paper shows positive effects. Higher the financial reporting quality higher
Asaolu, Taiwo will be the performance of the firm.

Negative impact of financial reporting on firm’s performance:

Serial no Authors name Year Findings

1 Cohen, D. A. 2003 This article shows negative relation as no evidence is found that the
firms giving high quality financial reporting are enjoying lower cost of
capital equity. High reporting also involves potential costs.

2 Biddle, G. C., Hilary, 2009 This study provides evidence l negative (positive) association These
G., & Verdi, R. S. results suggest that one mechanism linking reporting quality and
investment efficiency is a reduction of frictions such as moral hazard and
adverse selection that hamper efficient investment.

3 Costello, A. M., & 2010 Lender impose stringent terms when financial reporting quality is low.
Wittenberg Moerman, Long terms become more stronger.
R.

4 Lopes, C. M. F. P. 2012 Poor accounting will make it harder to estimate firms ability to pay
dividend and repay debts. income decreasing abnormal accruals will
decrease measure of performance

5 Mehmood.I 2015 The study found that the dividends have a negative effect on the investment
Al-shahar, decision. In addition, the results showed that the influence of dividends on
Umer.nadal the investment decision varies, depending on the financial reporting quality.
zalom interaction between the dividends and the financial reporting quality
increases the negative effect on the investment decision
6 Hamed sayar 2015 Negative effect is shown the
the paper . As the audit quality is not good it would reflect the weak
internal controls and ultimately negatively effects the firms
performance.
7 Gill de Albornoz 2017 We find that firms controlled by foreign shareholders have poorer
Noguer, B., & accruals quality than locally controlled firms. We also observe that, as
Rusanescu, S.
opposed to local controlling shareholders, the tenure of the foreign
controlling shareholders has a positive impact on the subsidiaries’
earnings management practices, suggesting that the foreign owners
gain a richer knowledge of the local accounting regulations over time
which they use to manipulate their subsidiaries’ accounting numbers.
8 Angela, W., & 2017 financial reporting quality has negative effect on financing.
Aryancana, R It can directly effect investments by decreasing moral hazrds and
discouraging managers to over-invest.
 9 Onyabe, J. M., 2018 The study reveals that audit committee tenure has a negative and
Okpanachi, J., Nyor, insignificant effect on financial reporting quality under the two models.
T., Yahaya, O. A., &
Ahmed, M.

References (positive effect of cultural diversity):

1. Gomez-Mejia, L. R., &Palich, L. E. (1997). Cultural diversity and the performance of multinational firms. Journal of International Business
Studies, 28(2), 309-335.
2. Uzzi, B. (1997). Social structure and competition in interfere networks: The paradox of embeddedness. Administrative science quarterly,
35-67.
3. Hitt, M. A., Hoskisson, R. E., & Kim, H. (1997). International diversification: Effects on innovation and firm performance in product-
diversified firms. Academy of Management journal, 40(4), 767-798.
4. Kochan, T., Bezrukova, K., Ely, R., Jackson, S., Joshi, A., Jehn, K. ... & Thomas, D. (2003). The effects of diversity on business performance:
Report of the diversity research network. Human Resource Management: Published in Cooperation with the School of Business
Administration, The University of Michigan and in alliance with the Society of Human Resources Management, 42(1), 3-21.
5. Richard, O. C., Barnett, T., Dwyer, S., & Chadwick, K. (2004). Cultural diversity in management, firm performance, and the moderating
role of entrepreneurial orientation dimensions. Academy of management journal, 47(2), 255-266.
6. Roberson, Q. M., & Park, H. J. (2007). Examining the link between diversity and firm performance: The effects of diversity reputation and
leader racial diversity. Group & Organization Management, 32(5), 548-568.
7. McMahon, A. M. (2010). Does workplace diversity matter? A survey of empirical studies on diversity and firm performance, 2000-09.
Journal of Diversity Management, 5(2), 37-48.
8. Simons, S. M., & Rowland, K. N. (2011). Diversity and its impact on organizational performance: The influence of diversity constructions
on expectations and outcomes. Journal of technology management & innovation, 6(3), 171-183...
9. Simons, S. M., & Rowland, K. N. (2011). Diversity and its impact on organizational performance: The influence of diversity constructions
on expectations and outcomes. Journal of technology management & innovation, 6(3), 171-183.
10. Elsaid, A. M. (2012). The effects of cross cultural work force diversity on employee performance in Egyptian pharmaceutical
organizations. Business and Management Research, 1(4), 162.
 11. Brunow, S., & Nijkamp, P. (2012). The Impact of a Culturally Diverse Workforce on Firms' Market Size: An Empirical Investigation on
Germany.
12. Umans, T. (2012). The bottom line of cultural diversity at the top: the top management team's cultural diversity and its influence on
organizational outcomes (Doctoral dissertation, Lund Institute of Economic Research, School of Economics and Management, Lund
University).
13. Choi, B. P., Jeong, J. G., & Lee, Y. (2014). Diversity and Firm Performance: An Analysis of Different Workforce Level and Ethnic Groups.
The Journal of Business Diversity, 14(1), 48.
14. Leng, C. Z., &Yazdanifard, R. (2014). The Relationship between Cultural Diversity and Workplace Bullying in Multinational Enterprises.
Global Journal of Management And Business Research.
15. Ayega, E. N., &Muathe, S. (2018). Critical Review of Literature on Cultural Diversity in the Work Place and Organizational Performance: A
Research Agenda. Journal of Human Resource Management, 6(1), 9.

References (negative impact of cultural diversity):

1. Milliken, F. J., & Martins, L. L. (1996). Searching for common threads: Understanding the multiple effects of diversity in organizational
groups. Academy of management review, 21(2), 402-433.
2. Jehn, K. A., Northcraft, G. B., & Neale, M. A. (1999). Why differences make a difference: A field study of diversity, conflict and
performance in workgroups. Administrative science quarterly, 44(4), 741-763.
3. Tibben, P. A. (2010). Top management team diversity and firm performance (Master's thesis).
4. Von Bergen, C. W., Soper, B., & Foster, T. (2002). Unintended negative effects of diversity management. Public personnel management,
31(2), 239-251.
5. Kochan, T., Bezrukova, K., Ely, R., Jackson, S., Joshi, A., Jehn, K., ... & Thomas, D. (2003). The effects of diversity on business performance:
Report of the diversity research network. Human Resource Management: Published in Cooperation with the School of Business
Administration, The University of Michigan and in alliance with the Society of Human Resources Management, 42(1), 3-21.
6. Richard, O. C., Barnett, T., Dwyer, S., & Chadwick, K. (2004). Cultural diversity in management, firm performance, and the moderating
role of entrepreneurial orientation dimensions. Academy of management journal, 47(2), 255-266.
7. Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of financial
economics, 94(2), 291-309.
8. Daunfeldt, S. O., & Rudholm, N. (2012). Does gender diversity in the boardroom improve firm performance. Departamento de Economía
de la Universidad de Dalarna..
9. Leng, C. Z., & Yazdanifard, R. (2014). The Relationship between Cultural Diversity and Workplace Bullying in Multinational Enterprises.
Global Journal of Management And Business Research.
10. Martin, G. C. (2014). The effects of cultural diversity in the workplace. Journal of Diversity Management (Online), 9(2), 89.
 11. Frijns, B., Dodd, O., & Cimerova, H. (2016). The impact of cultural diversity in corporate boards on firm performance. Journal of
Corporate Finance, 41, 521-541.

References (positive impact of financial reporting quality):

1. Graham, J. R., Harvey, C. R., & Rajgopal, S. (2005). The economic implications of corporate financial reporting. Journal of accounting and
economics, 40(1-3), 3-73.
2. Kaynak, H. (2003). The relationship between total quality management practices and their effects on firm performance. Journal of
operations management, 21(4), 405-435.
3. Orlitzky, M., Schmidt, F. L., & Rynes, S. L. (2003). Corporate social and financial performance: A meta-analysis. Organization studies,
24(3), 403-441.
4. Beest, F. V., Braam, G. J. M., & Boelens, S. (2009). Quality of Financial Reporting: measuring qualitative characteristics.
5. Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting
and Economics, 48(2-3), 112–131. doi:10.1016/j.jacceco.2009.09.001
6. Martínez-ferrero, j. (2014). Consecuencias de la calidad de la informaciónfinanciera en el rendimientofinanciero: evidencia para el
ámbitointernacional. Estudios de economía, 41(1), 49-88
7. Jaballah, e., yousfi, w., &ali, z. M. (2014). Quality of financial reports: evidence from the tunisian firms. E3 journal of business
management and economics, 5(2), 30-38.
8. Chiang, h., he, l. J., &shiao, c. F. (2015). Financial reports quality and corporate social responsibility. Asian economic and financial review,
5(3), 453-467.
9. Lin, z., jiang, y., tang, q., & he, x. (2014). Does high-quality financial reporting mitigate the negative impact of global financial crises on
firm performance? Evidence from the united kingdom. Australasian accounting, business and finance journal.
10. Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical
disclosure literature. Journal of accounting and economics, 31(1-3), 405-440.
11. Onuorah, a. C. C., &friday, i. O. (2016). Corporate governance and financial reporting quality in selected nigerian company. International
journal of management science and business administration, 2(3), 7-16.
12. Herith,k.sss , alberqi,n. (2017).financial reporting quality. International journal of business and commerce , 2(2) ,34-54
13. Al-dmour, a., abbod, m., & al-balqa, n. (2018). The impact of the quality of financial reporting on non-financial business performance and
the role of organizations demographic'attributes (type, size and experience).
14. Jimoh, ibrahim. (2018). Financial reporting quality and its effect on investment decisions by nigerian deposit money banks
15. Adekunle, A. A., & Asaolu, T. (2013). AN EMPIRICAL INVESTIGATION OF THE FINANCIAL REPORTING PRACTICES AND BANKS'STABILITY IN
NIGERIA. Kuwait Chapter of the Arabian Journal of Business and Management Review, 2(5), 157.
References (negative effect of financial reporting quality)

1. Cohen, D. A. (2003). Quality of Financial Reporting Choice: Determinants and Economic Consequences. SSRN Electronic Journal .
doi:10.2139/ssrn.422581
2. Biddle, G. C., Hilary, G., & Verdi, R. S. (2009). How does financial reporting quality relate to investment efficiency? Journal of Accounting
and Economics, 48(2-3), 112–131. doi:10.1016/j.jacceco.2009.09.001
3. Costello, A. M., & Wittenberg Moerman, R. (2010). The Impact of Financial Reporting Quality on Debt Contracting: Evidence from
Internal Control Weakness Reports. SSRN Electronic Journal. doi:10.2139/ssrn.1455985
4. Lopes, C. M. F. P. (2011). FEP WORKING PAPERS Research(Doctoral dissertation, Universidade do Porto).
5. ‫ أثر توزيعات األرباح على القرار االستثماري في ضوء جودة التقارير المالية‬.) 2015( .‫ إسحق محمود‬،‫ & الشعار‬,‫ نضال عمر‬،‫ =زلوم‬The Effect of Dividends on the
Investment Decision in the Light of the Financial Reporting Quality. Jordan Journal of Economic Sciences, 200(3282), 1-19.
6. Sayyar, H., Rohaida, R., & Sidi Zaleha Abdul-Elhabib, M. A. (2015). The Impact of Audit Quality on Firm Performance: Evidence from
Malaysia. International Business School, University Teknology Malaysia, June,(1-19).
7. Gill de Albornoz Noguer, B., & Rusanescu, S. (2017). Foreign ownership and financial reporting quality in private subsidiaries. Instituto
Valenciano de Investigaciones Económicas, SA (Ivie).
8. Angela, W., & Aryancana, R. (2017). The Effect of Financial Reporting Quality on Financing and Investment. Etikonomi, 16(1).
9. Onyabe, J. M., Okpanachi, J., Nyor, T., Yahaya, O. A., & Ahmed, M. (2018). Effect of Audit Committee Tenure on Financial Reporting
Quality of Listed Deposit Money Banks in Nigeria. European Scientific Journal, ESJ, 14(4).