Family firm and analyst forecasts in an emerging economy

Abstract

Purpose-The purpose of this paper is to examine how family firms affect analyst forecast dispersion, accuracy and optimism and how earnings smoothness as the moderating factor, affects these relationships in an emerging market context. Design/methodology/approach-This paper uses the population sample of firms listed on the Taiwan Stock Exchange from 2009 to 2010 as the research sample, which includes 963 firm-year observations. Findings-The findings show that analysts following family firms are more likely to have more dispersed, less accurate and more optimism biased forecasts than those following nonfamily firms. Earning smoothness is mainly used by nonfamily firms as a signalling strategy to improve analyst forecast quality. In contrast, earnings smoothness is mainly used by families as a garbling strategy, stimulating forecast optimism. Only earnings smoothness in family firms with a high level of family ownership concentration is likely to be signalling-oriented to improve analyst forecast accuracy and mitigate analyst optimism biases. Originality/value-Emerging markets are not only featured by prevailing principal-principal conflicts but also have multiple levels of agency conflicts among large shareholders, minority shareholders and professionally hired managers. This research reveals the multiple governance roles of family owners in affecting analyst forecast quality, including their entrenchment role in extracting private benefits of control through opaque environments and market discipline distortion role in aligning interests between managers and families without prioritising meeting or beating analyst forecasts, both at the cost of minority shareholders. This research further disentangles the intertwined signaling oriented and garbiling oriented incentives associated with earnings smoothness under family governance.

Family Control, Biaya Keagenan Dan Risiko Keuangan Terhadap Nilai Perusahaan

“…Anggota keluarga cendrung untuk mengambil alih kekayaan pemegang saham minoritas malalui tunjangan atau investasi di perusahaan lain dengan kepentingan keluarga (Sakawa & Watanabel, 2019). Oleh karena itu, meningkatkan pemahaman tentang bagaimana perusahaan keluarga memiliki perbedaan dengan perusahaan-perusahaan non keluarga dalam hal menggunakan laba, sebagai mekanisme yang mempengaruhi perkiraan analis dalam beberapa konflik keagenen yang disebabkan oleh kepentingan yang berbeda antara dua belah pihak (Zhang et al, 2017).…”

Entrepreneurial decision-making and family social capital

“…In the questionnaire, we provided the definition of a family firm (Chua et al, 1999) and required the CEO or chairman to clarify whether his or her firm was a family firm or not. After removing non-family firms and missing data, we finally aggregated 152 valid questionnaires, with a reasonable response rate of 15.2% (Kellermanns et al, 2008;Zhang et al, 2017). Items, measures and related alphas of dependent and independent variables are listed in the Appendix.…”

The effect of earnings management on the reputation of family and non-family firms

“…Since they track firms regularly, they are more likely to have accurate assessment about financial statements, whether prepared tediously with complicated footnotes (e.g. Zhang et al, 2017). Zhang et al (2017) specifically show that financial analysts as well as investors are more likely to have optimistic ideas in their forecasts about the family firms than non-family firms.…”

“…Zhang et al, 2017). Zhang et al (2017) specifically show that financial analysts as well as investors are more likely to have optimistic ideas in their forecasts about the family firms than non-family firms.…”