Founder domination, industry environment, and family firms' earnings management

Abstract

PurposeBased on socioemotional wealth theory, the authors explore the impact of founder domination (with the founder as the chairman or CEO) on the earnings management activities of family firms and examine the moderating effect of the industry environment on the above relationship.Design/methodology/approachBased on the multivariate regression model, the authors test the theoretical view on the empirical data of Chinese family-owned listed companies.FindingsThe authors propose and find that under founder domination, family firms are unlikely to engage in earnings management activities. Furthermore, the authors find that industry growth enhances the above relationship, while industry competition weakens it.Originality/valueFirst, by clarifying the importance and heterogeneous impacts of the founder serving as chairman or CEO on China's family firms' earnings management, this research contributes to a fuller understanding of the impact of founder domination on the business activities of firms, especially family firms. Second, the authors contribute to the literature that examines the antecedents of earnings management, particularly in family firms. Third, the authors contribute to the study of the boundary conditions of the “founder domination-firms’ business activities” framework.

Illuminating the shadows: a systematic review of earnings management practices in family-owned enterprises and future research directions

“…On the contrary, Zhong et al (2022) argued, through the Socio-emotional Wealth theory, that the dominance of family founders in FFs may prevent such firms from engaging in EM activities, due to family influence. This theory holds promise as an explanation for the behavior of family businesses in future research, addressing the emotional needs of the family distinct from financial aspects.…”

Empowering workers’ involvement: Unveiling the dynamics of communication, recognition, productivity, and decision-making in the RMG sector

“…Employee participation in the decision-making process creates a good working environment, enhances job satisfaction, increases commitment, and improves productivity (Dede, 2019). Several studies found a significant positive relationship between employee participation and motivation (Wagner III, 1994) And productivity is considered a performance measurement indicator of employees from two dimensions: effectiveness and efficiency (Zhong, Ren, & Wu, 2022). Participative activities within the organization have also been found to have a positive relationship with employee productivity (Rosenberg & Rosenstein, 1980).…”

Earnings Management and Corporate Performance in the Scope of Firm-Specific Features

“…H1b: There is a statistically significant relationship between earnings management practices (measured by discretionary accruals) and legal form/ownership structure. Zhong et al (2022) found that industry growth may enhance earnings management, while industrial competition weakens it. Baatwah et al (2021) also reported that specific industry expertise can result in earnings manipulation reduction.…”

“…2146-58) supported the beneficial impact of the sector of operation on earnings management. Zhong et al (2022) measured the impact of industrial environment on earnings management activities and revealed that industry growth may increase these activities. Perafan-Pena et al ( 2022) also provided evidence demonstrating the significance of the sector in the relationship to earnings management.…”