Effect of Family Control on Earnings Management: The Role of Leverage

Abstract

This study aims to examine whether family control has a positive effect on earnings management of manufacturing companies and whether leverage weakens the positive effect of family control on earnings management. This study uses panel data for the 2015–2019 observation year. The research population consists of companies listed on the Indonesian capital market. Sample selection was performed with a purposive sampling approach using certain criteria, namely: the company was not delisted during the observation period; the company has complete research data; and that the company is included in the criteria for family companies. The sample of the study consists of 84 companies with a total of 419 observations. We use panel data regression to prove our hypotheses. The findings of our research show that family control has a positive effect on earnings management and leverage weakens the positive effect of family control on earnings management. Additional tests confirm the main test. The implications of our research are expected to be input for determining regulations and policies related to restrictions on majority shareholders to protect minority shareholders.

Do CEO duality and expertise affect earnings management behavior? The moderating effect of family ownership

“…This implies that family ownership exerts a lowering effect on the CEO's financial expertise ability to stem earnings management. This finding is consistent with Murni et al . (2023) and Kumala and Siregar (2021) who claim that family control has a positive effect on earnings management in Indonesia.…”

“…This implies that family ownership exerts a lowering effect on the CEO's financial expertise ability to stem earnings management. This finding is consistent with Murni et al (2023) and Kumala and Siregar (2021) who claim that family control has a positive effect on earnings management in Indonesia. Nonetheless, they contradict with the findings of Richardson and Leung (2011) who reported that family firms are less prone to the practices of earnings management than non-family firms in Hong Kong.…”

The Influence of Cash Flows Volatility on The Relationship Between Leverage and Accruals Earnings Management

“…Our investigation confirms that leverage positively affects accruals-based earnings management (Hoang & Phung, 2019;Murni et al, 2023;Tonye & Sokiri, 2020). Our analysis also shows how business risk affects this relationship.…”

“…As most obligations increase, accruals earnings management decreases. Financial leverage and accruals earnings management were positively correlated in Egyptian enterprises by Bassiouny (2016), Kalbuana et al ( 2021) and Murni et al (2023). Jordanian and Tunisian enterprises have a favorable relation among accruals earnings management and leverage, according to Abbadi et al (2016) and Lanouar et al (2013).…”