Related party transactions and earnings management in family firms: the moderating role of board characteristics

Gavana, Giovanna; Gottardo, Pietro; Moisello, Anna Maria

doi:10.1108/jfbm-07-2022-0090

Cited by 12 publications

(24 citation statements)

References 121 publications

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“…Our study contributes to the corporate governance literature by investigating the effect of CEOs' characteristics on earnings management to meet or beat earnings thresholds during an economic crisis period. It also contributes to the growing stream of research on family firm governance (Gavana et al, 2022) by providing evidence of the moderating effects of family ownership on the CEO attributes-earnings management relationship.…”

Section: Discussionmentioning

confidence: 99%

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

Oussii

Klibi²

2023

JFBM

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PurposeThis study aims to analyze whether chief executive officer (CEO) duality and financial expertise are associated with earnings management to exceed thresholds. It also investigates to what extent and in what direction this association evolves when family ownership is introduced as a moderator variable.Design/methodology/approachBased on balanced panel data related to companies listed on the Tunis Stock Exchange, this study uses the logistic random-effect model to test research hypotheses during the period spanning from 2016 to 2021.FindingsThe results show that CEOs with financial expertise are less inclined to engage in earnings management to avoid reporting losses and earnings decline. The authors also provide evidence that CEO duality allows top management to be more powerful and, therefore, manage earnings to report positive profits and sustain recent performance. Furthermore, the authors find that family ownership moderates the association between CEO financial expertise, CEO duality and earnings management to exceed thresholds.Practical implicationsThe findings suggest to regulators involved in corporate governance and earnings management issues a reflection on CEO duality power, board effectiveness and family control. The study results are also of interest to auditors and board members as they provide a more in-depth understanding of the impact of CEOs' attributes and family control on financial reporting decisions.Originality/valueThis study extends past literature by providing new insights into the effect of CEO attributes and family control on earnings management practices in weak investor protection countries such as Tunisia.

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Section: Discussionmentioning

confidence: 99%

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

Oussii

Klibi²

2023

JFBM

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“…The larger the value of kEMk, the more it will be interpreted as evidence of EM. In this research study, various control variables have been used in line with related previous studies (Beuselinck and Deloof, 2014;Gavana et al, 2022;Khan and Kamal, 2022;Kim and Yi, 2006;Muttakin et al, 2017;Seifzadeh et al, 2022). This research study used some control variables that may affect the value of EM as well as the FBG affiliation dummy, such as firm size, profitability, leverage, a loss dummy, firm growth, firm age and the BIG4 audit firms.…”

Section: Population Sample Size and Data Collection Of The Studymentioning

confidence: 99%

The same network auditor, family business groups and earnings manipulation: an evidence from emerging market

Khan

Kamal

2023

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Purpose This paper aims to examine whether family business groups’ (FBG) having the same network auditor among their affiliates mitigates earnings manipulation (EM). Design/methodology/approach This paper used unbalanced panel data from the years 2010–2019. The sample of the study is composed of 327 nonfinancial listed Pakistan Stock Exchange firms, consisting of 187 FBG-affiliated firms and 140 nonaffiliated firms. The ordinary least square and generalized least square regressions have been used to check the hypothesized relationship. Furthermore, the propensity score matching technique is used to ascertain comparable companies’ features and to control the potential endogeneity problem. Finally, the results are robust to various measures of EM and FBG’ proxies. Findings The findings of the study show that the same network auditor is reducing EM in FBG affiliates. In addition, the BIG4 same network auditors are also instrumental in constraining EM as compared to non-BIG4 audit firms. Overall, the results of this study depict that the same network auditor in FBG’s affiliated firms significantly influences EM. These results are robust with respect to generalized least squares and the endogeneity problem. Research limitations/implications This research study has two important implications for the interested parties. First, although the authors find in this research study that the same network auditor is negatively associated with EM in the FBG-affiliated firms, however, FBG-affiliated firms might use opportunistically the real activity manipulation. Second, regulators highlight the change in audit partner/firm rotation, though the study findings indicate that regulators and practitioners may consider the benefits associated with the same network auditors for FBG. Originality/value This research study adds a new investigation to previous literature by examining the role of the same network auditors in the EM of the FBG’ affiliates. To the best of the author’s knowledge, this is the first study to bring new knowledge by investigating the role played by the same network auditors along with the BIG4 same network audit firms in constraining EM in FBG.

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“…In a recent paper by Gavana et al (2022), it is found that related party transactions in family businesses might be used as a substitute/complement for earnings manipulation, especially when family control is strong, in line with the principal-principal conflict. Jiang and Peng (2011) state that the severity of agency conflicts in a family business depends on the institutional setting in which it operates.…”

Section: Directorates and Family Firm Performancementioning

confidence: 99%

“…This situation is worse in settings of high ownership concentration and poor external corporate governance like Mexico, where legal frameworks and market controls are incipient (Lien et al, 2016). Interlocks can increase the influence of the involved parties (business families), making it possible for them to jointly benefit from expropriating other stakeholders, and reducing companies' outcomes (for example, by relocating assets to private (family) hands -Drago et al, 2015; or by stimulating related party transactions, which might have a similar effect to managing earnings downwards to reduce dividend payments - Gavana et al, 2022). Accordingly, the following hypotheses are proposed:…”

Section: Directorates and Family Firm Performancementioning

confidence: 99%

“…The context is quite different; on the one hand, the business family widely represented in the interlocks could be interested in other objectives beyond financial profitability. In addition, high ownership concentration together with formal institutional weakness facilitates business families to carry out actions that favour their private interests at the expense of those of minority shareholders (for instance by selling assets to related firms below market prices -Maury, 2006or for example by manipulating earnings and/or increasing related party transactions - Gavana et al, 2022). Interlocks could be used as an instrument to achieve the objectives of business families which sometimes, but not always, coincide with those of minority shareholders.…”

Section: Interlocking Directorates Theories and Their Gapsmentioning

confidence: 99%

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Interlocking directorates and family firm performance: an emerging market’s perspective

Watkins-Fassler

Ariza

Fernández‐Pérez

et al. 2023

JFBM

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PurposeThis study analyses interlocking directorates from the perspective of an emerging market, Mexico, where formal institutions are weak, and family firms with high ownership concentration dominate. It responds to recent calls in the literature on interlocks, which urge the differentiation between family and non-family businesses and to complete more research on emerging economies.Design/methodology/approachA database was constructed for 89 non-financial companies (52 family-owned) listed on the Mexican Stock Exchange (BMV) from 2001 to 2014. This period includes normal times and an episode of financial crisis (2009–2010). To test the hypotheses, a dynamic panel model (in two stages) is used, applying GMM.FindingsIn normal times, the advantages of Board Chairman (COB) interlocks for the performance of publicly traded Mexican family firms are obtained regardless of the weak formal institutional environment. By contrast, during financial crisis, interlocking family COBs are more likely to jointly expropriate minority shareholders with actions that further their family objectives, which mitigates the positive effect of interlocks on performance. These findings contrast with the insignificant effects of COB interlocks found for non-family corporates.Originality/valueA new framework is proposed which, through agency theory, finds points of concordance among resource dependence and class hegemony theories, to understand the effect of interlocking directorates on the performance of family firms operating in Mexico. The results of the empirical exercise for family companies listed on BMV during normal and financial crisis periods suggest its applicability.

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Related party transactions and earnings management in family firms: the moderating role of board characteristics

Cited by 12 publications

References 121 publications

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

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

The same network auditor, family business groups and earnings manipulation: an evidence from emerging market

Interlocking directorates and family firm performance: an emerging market’s perspective

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