Family firms' credit rating, idiosyncratic risk, and earnings management

Lin, Yi‐Mien; Shen, Cheng-An

doi:10.1016/j.jbusres.2014.11.044

Cited by 47 publications

(36 citation statements)

References 28 publications

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“…Financial variables represent firm financial characteristics such as leverage, total assets, operating cash flow, and current profit or loss, that are likely associated with the dependent variable [26][27][28][29][30][31][32][33][34]. The non-financial variables include the largest shareholder, whether the firm is state-owned, frequency of board meetings, and whether the audit firm is a big four audit firm [35][36][37][38][39][40][41]. The specific definitions of the variables are shown in Table 1.…”

Section: Mode and Description Of Variablesmentioning

confidence: 99%

Improving Sustainability through a Dual Audit System

2018

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Abstract:As a consequence of a large-scale accounting fraud, China implemented a dual audit system for listed companies issuing foreign stocks (B shares and H shares) from 2001 to 2006, before adopting Chinese-IFRS in 2007. At the end of 2010, the EU proposed that listed corporations over a certain size should be required to implement a joint audit system. However, only a few countries have implemented this system, and thus, data and references are extremely limited. The dual audit system is called the "twin" of the joint audit system. We analyze whether the dual system improves a company's earnings quality. Earnings quality is studied by means of real earnings management, and the variable of loss aversion. We find that real earnings management of dual audited enterprises is lower than that of single audited (A-share) enterprises, and the inclination toward loss aversion of enterprises in the foreign share market has not increased significantly relative to the A-share enterprises after the abolition of the dual audit system. The results indicate that a dual audit system improves earnings quality. We expect that the conclusions of this research will resolve the issues and concerns about the joint audit system.

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Section: Mode and Description Of Variablesmentioning

confidence: 99%

Improving Sustainability through a Dual Audit System

2018

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“…The higher cost of debt in non-family companies can act as a disciplining mechanism that lowers reliance on additional signals related to tangible assets. Furthermore, with limited idiosyncratic assets compared to family firms, the nature of assets could be more easily evaluated in non-family firms (Lin & Shen, 2015), lowering debt contract concessions for these firms.…”

Section: Hypothesis 1 Debt Contract Strictness Is Lower In Public Famentioning

confidence: 99%

Pound of Flesh? Debt Contract Strictness and Family Firms

Hillier¹,

Martínez

Patel

et al. 2017

Entrepreneurship Theory and Practice

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While past work finds support for both higher and lower cost of debt among family firms, whether lower shareholder-creditor agency conflicts in family firms translate into greater exante contracting efficiency (i.e., lower debt contract strictness) remains unexplored. Drawing on a shareholder-creditor agency framework and costly contracting theory, creditors, expecting firm value maximization rather than shareholder value maximization from family firms, may offer less strict debt contracts to increase contracting efficiency. We find in a sample of 716 publicly traded US firms (2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)) that family firms have less strict debt contracts, which are even less strict when family firms have higher asset tangibility. Although increases in R&D investments could lead to more pronounced shareholder-creditor agency conflicts, given family firms' preferences for lower risk and growth, debt contract strictness among family firms is not positively associated with higher R&D intensity.

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“…The measurement of ownership structure is carried out on the basis of institutional ownership (IO), which is measured by the number of shares owned by institutional. Lin and Shen (2015) note that ownership of family companies tends to have the opportunity to influence their credit ratings, because they have the possibility of showing greater earnings. However, as these researchers point out, while a family firm may be able to manipulate earnings, if family idiosyncratic risk is observed, this would lessen the company's credit rating (Lin and Shen, 2015).…”

Section: Variables Measurement and Regression Modelmentioning

confidence: 99%

“…Lin and Shen (2015) note that ownership of family companies tends to have the opportunity to influence their credit ratings, because they have the possibility of showing greater earnings. However, as these researchers point out, while a family firm may be able to manipulate earnings, if family idiosyncratic risk is observed, this would lessen the company's credit rating (Lin and Shen, 2015). Dasilas and Papasyriopoulos (2015) show that capital structure, credit rating and corporate governance are closely related in small as well as large Greek companies.…”

Section: Variables Measurement and Regression Modelmentioning

confidence: 99%