The effect of socioemotional wealth diversity within the top management team on earnings management in private family firms: The moderating role of the board of directors

Corten, Maarten; Vandekerkhof, Pieter; Steijvers, Tensie

doi:10.1002/mde.3352

Cited by 8 publications

(4 citation statements)

References 82 publications

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“…This supports our earlier assertion of practice of earnings management with a motive to maintain the control of the organizations (Achleitner et al. , 2014; Corten et al. , 2021).…”

Section: Empirical Findingssupporting

confidence: 89%

“…We have used three measures of debt, out of our three measures of debt, long-term debt to total debt and interest coverage ratio was found to be significantly associated with the accrual-based earnings management. This supports our earlier assertion of practice of earnings management with a motive to maintain the control of the organizations (Achleitner et al, 2014;Corten et al, 2021). As mentioned earlier, most of the borrowings for the Indian firms are through banks.…”

Section: Control Variable Hldebt Itsupporting

confidence: 88%

“…(2010) observed higher levels of earnings management among the poorly performing family firms. Corten et al. (2021) indicate higher levels of accrual and RAEM due to the goal differences within the family firm.…”

Section: Literature Reviewmentioning

confidence: 99%

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Earnings management by family firms to meet the debt covenants: evidence from India

Avabruth

Padhi

2022

JAEE

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PurposeGiven the unique nature of Indian family firms and the recent failure of many business houses (Bhushan Steel Ltd., Hotel Leela Ventures Ltd. etc.) it is important to understand the relationship between the earnings management practices of the family firms and the debt. In this paper an attempt towards this has been made.Design/methodology/approachThis study makes use of an empirical approach to understand the relationship between earnings management and debt in the Indian context. This study was conducted by considering a large sample data of 16,629 family firm years spread across nine years. This study makes use of fixed effects and Generalized Method of Moments (GMM) regressions to test our hypothesis.FindingsFirst and foremost, this research supports the socioemotional wealth theory. It indicates that maintaining the control of the business is one of the socioemotional factors for the Indian family business and Indian family businesses ladened with debt engage in earnings management to protect their socio emotional wealth (control of the business). Evidence for higher earnings management practices for firms with above average debt has also been documented. Further, the fact that real activity earnings management is the preferred earnings management choice over the accrual-based earnings management as majority of debt is from the banks and financial institutions has also been demonstrated. Finally, the analysis indicates that accrual-based earnings management and real activity earnings management are complementary to each other. However, real activity earnings management can also act as a substitute for the accrual-based earnings management but the reverse is not true. Even among the real activity earnings management, cost-based real activity earnings management was preferred over the revenue-based real activity earnings management as the former is more elusory.Research limitations/implicationsThis research is limited to the listed family firms of India. Since the family firms around the world are heterogeneous the findings from this research might not be extended to other economies.Practical implicationsThe study has meaningful insights for policy making and monitoring of the family firms. It also aides the investors in taking investment decisions with respect to family firms in India.Originality/valueThe study is unique as it integrates the family firms, debt and various types earnings management. Previous studies have focused mainly on accrual-based earnings management. The study also provides insights on the relationship between earnings management practices and debt covenants at various levels of family holdings.

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“…This supports our earlier assertion of practice of earnings management with a motive to maintain the control of the organizations (Achleitner et al. , 2014; Corten et al. , 2021).…”

Section: Empirical Findingssupporting

confidence: 89%

Section: Control Variable Hldebt Itsupporting

confidence: 88%

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Earnings management by family firms to meet the debt covenants: evidence from India

Avabruth

Padhi

2022

JAEE

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“…questions about firm's FP and CSR because financial transparency is one of the most important parts of firms' socially responsible behavior while maximizing their profit (Koehn & Ueng, 2010). CSR-earnings management (EM) link has recently emerged in the social stream of research, and several studies have investigated the CSR and EM relationship, but their findings are inconclusive (Corten et al, 2021;Ehsan et al, 2020). Some studies have concluded that this relationship is positive (Buertey et al, 2020;Muttakin et al, 2015;Patro & Pattanayak, 2017), some studies have reported negative relationship (Ben Amar & Chakroun, 2018;Gras-Gil et al, 2016), and in few cases, researchers have found no relationship (Toukabri et al, 2014).…”

mentioning

confidence: 99%

Nexus between corporate social responsibility and earnings management: Sustainable or opportunistic

et al. 2021

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This study examines the association between corporate social responsibility (CSR) and earnings management (EM) among manufacturing firms from a developing economy, Pakistan. To deal with the CSR measurement and data bias, a multimethod approach has applied to measure CSR (both qualitative and quantitative approaches).This research has also established CSR disclosure indices and CSR monetary spending ratio (CSR MSR). Moreover, this research examines both types of EM (accrual-based as well as real activities-based) and used annual data set from 2009 to 2018 for 160 nonfinancial firms. For empirical analysis, the two-stage least square (2SLS) and pooled ordinary least square (POLS) regressions are used. This study finds a negative relationship between CSR and EM, and it supports the notion that firms' commitment to CSR is largely driven by long-term perspective. However, with respect to each measure of EM and CSR, this relationship is asymmetric. | INTRODUCTIONConsiderable research on corporate social responsibility (CSR) has undertaken to determine what encourages the firms to engage in social activities, and most of the studies concluded that CSR has a positive effect on firms' financial performance (FP) (Calegari

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A selection model for innovation strategies in family SMEs

Jing¹,

Hou²,

Niu³

et al. 2022

Computers & Industrial Engineering

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The effect of socioemotional wealth diversity within the top management team on earnings management in private family firms: The moderating role of the board of directors

Cited by 8 publications

References 82 publications

Earnings management by family firms to meet the debt covenants: evidence from India

Earnings management by family firms to meet the debt covenants: evidence from India

Nexus between corporate social responsibility and earnings management: Sustainable or opportunistic

A selection model for innovation strategies in family SMEs

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