Influence of family control in the practice of earnings management

Abstract

Purpose -The purpose of this paper is to identify if the open Brazilian companies that have family control manage their accounting results in a negative way, and if this influence is in a positive sense of pushing the results down, that is, worsening their present profits due to future results. Design/methodology/approach -The empirical investigation is developed using as a sample 123 Brazilian companies listed on BM&FBovespa, totaling 1.353 observations for a period of 11 years (2000)(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010). Data analysis is conducted by means of regression with panel data, method of ordinary least squares (OLS), and random effects. Findings -First, it was found that family-type companies show lower profits compared to profits earned by non-family companies. Nevertheless, it was observed that family businesses have negative discretionary accruals higher than those submitted by non-family firms, and that family control has a positive influence on this type of earnings management.Research limitations/implications -The article provides an extension to earlier work focused on the relationship between family ownership and earnings management results. Practical implications -The paper provides a more critical look at family property, especially as regards the quality of their accounting information. Originality/value -The study not only investigates whether family control is positively related to discretionary accruals of Brazilian companies; it also checks the influence of family property on the production of negative accruals -"take a bath".

The effect of the CEO’s characteristics on EM: evidence from Jordan

“…According to the literature, discretionary accruals are higher in family companies than in non-family firms (Wang, 2006), as the familycontrolled companies are more likely to have higher profits than non-family companies (Ali et al, 2007;Jaggi et al, 2009;Almeida-Santos et al, 2013). However, the literature shows that most of these studies were conducted in developed countries, and no single study has been conducted in the Middle East region.…”

Related party transactions and earnings management in Jordan: the role of ownership structure

“…Evidence on the effects of family ownership on earnings management is mixed. For example, Rezaur Razzaque et al (2016) in Bangladesh, Chi et al (2015) in Taiwan, Almeida-Santos et al (2013) in Brazil, in addition to Alqatamin et al (2017) and Al- Haddad and Whittington (2019) in Jordan all reported a positive relation between family ownership and earnings management. On the other hand, Paiva et al (2019) found that earnings management in the UK is higher in family firms unless these are followed by financial analysts, whereas Prencipe et al (2008) found that earnings management for income smoothing purposes is lower in Italian family firms, and Chen et al (2015) found a similar relation in Japan.…”

The internationalization of a family business group

“…As many authors have suggested (Angel & Carrasco Hernándezet, 2013;Bañegil Palacios et al, 2013), assigning family members to key decisionmaking positions can facilitate the achievement of family goals. Although some studies have argued that implicit trust among family members is a distinctive resource in family business that can generate social capital (Arregle et al, 2007), others have argued that both family altruism and family management may cause control problems and trigger agency problems such as moral hazard, and adverse selection ultimately leading to bad decision-making (Morck, 1996;Schulze et al, 2001Schulze et al, , 2002Almeida-Santos, et al, 2013). The ambiguous influence of family management raises important questions concerning its role in the growth strategies of FBGs.…”