Founding Family Ownership and Earnings Quality

Abstract

This study investigates the relation between founding family ownership and earnings quality using data from the Standard & Poor's 500 companies. Existing literature has documented that financial reporting is of higher quality when firms have stronger corporate governance mechanisms and when there is greater demand for quality financial reporting. I provide two competing theories of the effect of founding family ownership on the demand and supply of earnings quality: the entrenchment effect and the alignment effect. The empirical results show that, on average, founding family ownership is associated with higher earnings quality. In particular, I find consistent evidence that founding family ownership is associated with lower abnormal accruals, greater earnings informativeness, and less persistence of transitory loss components in earnings. In addition, the results suggest a nonlinear relation between family ownership and earnings quality. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2006.

Ownership Structure and Earnings Forecast Accuracy: Evidence from Malaysian IPOs

“…The largest active-family owner controls about 64.38 percent of the capital shares. The higher percentage of common shares in the hand of active-family and management perhaps can be explained by the fact that family and managers is the same people as suggested by [26]. He suggests that family members usually hold important positions on both the management team and the board of directors.…”

Does Corporate Governance Influence Earnings Management in Latin American Markets?

“…This leads to these external agents perceiving a ''family reputation'' that has economic consequences that last not only for the owners' lifetime, but throughout the lives of his/her heirs. In the same line, Wang (2006) and Ali et al (2007) states that long-term orientation and reputation concerns means that family firms do not act opportunistically in reporting earnings, such that their actions are more in line with a short-term orientation. Markets?…”

“…Thus, there would be fewer incentives to obtain private benefits at the expense of minority shareholders, which in turn could result in a higher earnings quality (Bona et al 2008). However, Wang (2006) and Ali et al (2007) also point out that one of the main limitations of their studies is the difficulty in extending their results to other settings where there is a lower protection of minority shareholders, and consequently, more concentrated ownership structures, such as Latin America. This is because the presence of concentrated ownership structures and the presence of family groups may trigger other problems of CG.…”

“…Following this suggestion, we analyze apart from these two common dimensions examined by previous literature, two different dimensions of ownership structure that the literature has also shown could be an effective CG mechanism in monitoring management decisions, able to constrict manipulative practices and, consequently, improve earnings quality: family ownership (Wang 2006;Ali et al 2007;Bona et al 2008) and institutional ownership (Ferreira and Matos 2008;Ruiz et al 2009;Ferreira et al 2010). The next sections describe the development of the hypotheses related to the four ownership structure variables examined in our study.…”

Tempestividade Da Informação Contábil Em Empresas Familiares Brasileiras

“…Nesse sentido, Wang (2006) destaca que empresas familiares fornecem informações de qualidade aos usuários das demonstrações financeiras, a fim de obterem capital ao menor custo.…”