CEO career horizons and earnings quality in family firms

2020 ◽  
Vol 28 (2) ◽  
pp. 153-172
Author(s):  
Ayoib B. Che-Ahmad ◽  
Salau Olarinoye Abdulmalik ◽  
Nor Zalina Mohamad Yusof
Keyword(s):  
Agency Theory ◽  
Family Firms ◽  
Earnings Quality ◽  
Negative Relationship ◽  
Related Result ◽  
Chief Executive ◽  
Earnings Persistence ◽  
Method Of Moment ◽  
Content Type ◽  
Earnings Predictability

PurposeThe present study examines the effect of the chief executive officer (CEO) career horizon (CH) problem on earnings quality (ERN) for selected family-controlled firms known to have a unique operational goal.Design/methodology/approachThe generalised method of moment linear regression model was used on a sample of family-controlled firms in Malaysia from 2005 to 2016.FindingsThe study found a negative relationship between CH and ERN, measured by earnings persistence and earnings predictability. However, in the earnings predictability model, the reverse was found to be the case after interacting CH with CEO family affiliation, CEO experience and CEO equity. However, the use of a reputable auditor could not mitigate the CH problem. Also, the study obtained a closely related result in the earnings persistence model. The result aligns with the socio-emotional wealth (SEW) theory, which states that the goals of family-controlled firms go beyond financial objectives to include other non-financial objectives, and hence, their commitment to perpetuating their dynasty encourages them to preserve the quality of their earnings.Originality/valueExisting studies on family firms and ERN have treated family firms as homogeneous entities by comparing family and non-family firms, using the underlying theoretical justification of the agency theory. However, this study departs from the agency theory, by considering those factors (i.e. the extent of CEO alignment with family owners and the choice of auditor), using the SEW theory, which establishes the differences among family firms. This work builds on that of Chen et al., (2018) and Ali and Zhang (2015), which suggested that corporate governance can mitigate the CH problem. Therefore, the strength of a CEO's attachment to the family firm (measured by CEO equity ownership and CEO affiliation to family members in family firms) and the choice of the auditor can explain the variation in the effect of the CH problem in family firms.

Family ownership and earnings quality of Thai firms

2019 ◽  
Vol 27 (1) ◽  
pp. 112-136 ◽  
Author(s):  
Kriengkrai Boonlert-U-Thai ◽  
Pradyot K. Sen
Keyword(s):  
Financial Markets ◽  
Family Firms ◽  
Earnings Quality ◽  
Family Members ◽  
Family Ownership ◽  
Earnings Persistence ◽  
Content Type ◽  
Book Value ◽  
Founding Family

PurposeThe purpose of this paper is to provide evidence that the quality of earnings of family run firms is superior to that of the other firms and that firms run by founding family members exhibit this trait even more prominently. Using insights from the fundamental accounting valuation model, this study also hypothesizes that financial markets place a higher weightage on earnings than book value for founding family-run firms in Thailand as these firms report a more reliable earnings number.Design/methodology/approachThis is an empirical archival research.FindingsThe authors report evidence that financial markets place a higher weightage on earnings than book value for founding family-run firms. The evidence is consistent with the insight that current earnings of the founding family-run firms offer more information about future earnings and cash flow compared to book value than those for family (FAM) and non-family (NonCS) firms. The authors also provide evidence that earnings persistence and the accrual quality of the founding family firms are higher compared to the other firms. This evidence is contrary to the notion that family firms have more opaque disclosures, lower earnings quality and higher implied cost of equity capital.Research limitations/implicationsThe authors find support for the alignment hypothesis of the long-term family ownership of Thai firms. The authors consider these evidences consistent with the shareholder interest alignment hypothesis of the controlling shareholders as opposed to the entrenchment hypothesis.Practical implicationsThe study implies that earnings of the Thai firms run by founding family members are more reliable and can be relied on more for firm valuation. Additionally, the authors also offer a different methodology by appealing to the valuation properties of the reported accounting numbers besides looking at the quality of accruals and earnings persistence tests offered in the existing literature.Social implicationsThe society is better off if there are more opportunities to invest in Thai firms run by founding family members. The finding of the quality difference in governance by firms with founding family members is new. Therefore, the study points to the need of finer partition of the family firms while looking at their corporate governance practices. The fact that the FF firms offer a higher quality of earnings implies that they are less engaged in opportunistic manipulation of earnings and cash flow and, thus, are self-motivated to protect the longer term interest of the firms.Originality/valueThis if the first time the accounting fundamental valuation theory has been used to provide evidence of higher earnings quality.

CEO duality, earnings quality and board independence

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Sandra Alves
Keyword(s):  
Agency Theory ◽  
Fixed Effects ◽  
Earnings Quality ◽  
Chief Executive ◽  
Board Independence ◽  
Ceo Duality ◽  
Content Type ◽  
The Impact ◽  
The Relationship

Purpose This study draws on agency, theory to evaluate the relationship between chief executive officer (CEO) duality and earnings quality, proxied by discretionary accruals. Additionally, this study aims to examine whether board independence moderates the relationship between CEO duality and earnings quality. Design/methodology/approach This study uses a fixed-effects regression model to examine the effect of CEO duality on earnings quality and to test whether board independence moderates that relationship for a sample of non-financial listed Portuguese firms-year from 2002 to 2016. Findings Consistent with agency theory, this study suggests that CEO duality decreases earnings quality. Further, the results also suggest that the earnings quality reduction associated with CEO duality is attenuated when the board of directors has a higher proportion of independent directors. Practical implications The findings based on this study provide useful information to investors and regulators in evaluating the impact of CEO duality on earnings quality and the effect of board independence on the role of CEO duality, especially under concentrated ownership. Originality/value To the knowledge, this study is the first to investigate the role of board independence on the association between CEO duality and earnings quality. In addition, this paper is the first empirical study to investigate the direct and indirect effect of CEO duality on earnings quality in Portugal.

Political connections, family firms and earnings quality

2018 ◽  
Vol 41 (4) ◽  
pp. 414-432 ◽  
Author(s):  
Muhammad Arsalan Hashmi ◽  
Rayenda Khresna Brahmana ◽  
Evan Lau
Keyword(s):  
Agency Theory ◽  
Family Firms ◽  
Earnings Quality ◽  
Business Environment ◽  
Ownership Concentration ◽  
Political Connections ◽  
Family Ownership ◽  
Data Set ◽  
Content Type

PurposeThis paper aims to investigate the effect of political connections on earnings quality by simultaneously controlling the firm characteristics; to test whether Pakistani firms’ ownership, specifically family ownership, plays a significant role in political connections–earnings quality association; to draw a conclusion about the agency theory in the context of Pakistan.Design/methodology/approachA quantitative approach was used to examine the influence of political connections and family ownership on the earnings quality of listed firms in Pakistan. The study uses historical data from 238 active non-financial firms listed on the Pakistan Stock Exchange during the period of 2009-2015. The final data set comprises more than 1,600 firm-year observations from ten major non-financial industry classifications. To enhance the robustness of the empirical relationship, the study used several proxies of earnings quality in conjunction with robust regression methods and diagnostic checks.FindingsThe present study’s findings are consistent with the findings of the studies on agency theory previous literature, where politically connected firms have significantly lower earnings quality as compared to non-connected firms. The results also indicate that family firms have superior earnings quality than non-family–controlled firms. Furthermore, family ownership moderates the negative influence of political connections on earnings quality. This implies that family ownership diminishes the costs of political connections and improves the earnings quality of the firm.Originality/valueThis study is different from previous research in three respects. First, it examines whether family ownership concentration has a moderating influence on the relationship between political connections and earnings quality. Second, it uses a robust methodology and extensive data set to examine the influence of political connections and family ownership concentration on earnings quality. Further, this study is the first to analyze the nexus between financial reporting quality and the political business environment in the context of Pakistan.

Birth mode of family firms, family entering time and R&D investment: evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Zulfiqar ◽  
Shihua Chen ◽  
Muhammad Usman Yousaf
Keyword(s):  
Agency Theory ◽  
Family Firms ◽  
Family Firm ◽  
Research Database ◽  
Content Type ◽  
Firm Birth ◽  
The Relationship ◽  
D Investment ◽  
Moderating Role

PurposeOn the basis of behavioural agency theory and resource-based view, this study investigates the influence of family firm birth mode (i.e. indirect-established or direct-established), family entering time on R&D investment and the moderating role of the family entering time on the relationship between birth mode and R&D investment.Design/methodology/approachThe authors collected 2,990 firm-year observations from family firms listed on A-share in China from 2008 to 2016 in the China Stock Market and Accounting Research database. They used pooled regression for data analysis and Tobit regression for robustness checks.FindingsIndirect-established family firms show more inclined behaviour towards R&D investment than direct-established counterparts. Family entering time positively affects the R&D investment of family firms. Moreover, family entering time plays a significant moderating role in the relationship between family firm birth mode (i.e. indirect-established or direct-established) and R&D investment.Originality/valueTo the best of the authors’ knowledge, this work is a pioneering study that introduced the concept of family firm birth mode (i.e. indirect-established or direct-established) and family entering time. This work is novel because it differentiated family firms according to their birth modes, an approach which is a contribution to the existing literature of family firms. Moreover, the investigation of the moderating role of family entering time has also produced notable results that help understand the impact of family entering time on different types of family firms. The interpretation of outcomes according to behavioural agency theory also produced useful insights for future researchers as well as for policymakers.

scholarly journals IMPACT OF GREEN MANAGEMENT ON CEO COMPENSATION: INTERPLAY OF THE AGENCY THEORY AND INSTITUTIONAL THEORY PERSPECTIVES

2014 ◽  
Vol 15 (1) ◽  
pp. 96-110 ◽  
Author(s):  
A. Banu Goktan
Keyword(s):  
Institutional Theory ◽  
Agency Theory ◽  
Ceo Compensation ◽  
Management Practices ◽  
Negative Relationship ◽  
Chief Executive ◽  
State Regulation ◽  
Natural Environments ◽  
Green Management ◽  
Ceo Bonuses

There has been growing interest in green management practices among practitioners, researchers and regulators in recent years. However, there is limited research that examines the connection between natural environments and human resource management practices. The current study examined the relationship between Chief Executive Officer (CEO) compensation and green management practices within the agency theory and institutional theory frameworks. Results revealed a significant negative relationship between green management practices and CEO base pay, however, there was not a significant relationship between green management practices and CEO bonuses. In line with previous agency theory research, findings suggest a negative relationship between state regulation and CEO compensation in green states. An important implication for practice is that the negative relationship may strengthen negative perceptions about green management practices among CEOs and reduce willingness to implement green management practices.

Earnings persistence, institutional investors monitoring and types of political connections

2020 ◽  
Vol 28 (3) ◽  
pp. 309-327
Author(s):  
Chwee Ming Tee ◽  
Puspavathy Rasiah
Keyword(s):  
Institutional Investors ◽  
Earnings Quality ◽  
Political Connections ◽  
Earnings Persistence ◽  
Ceo Power ◽  
Content Type ◽  
Audit Firm ◽  
Political Ties ◽  
Different Types ◽  
Big Four

PurposeThe purpose of this study is to examine whether institutional investors monitoring attenuate (exacerbate) weaker earnings persistence in politically connected firms (PCFs). In addition, it investigates whether earnings persistence do vary according to different types of political connections.Design/methodology/approachThis study employs earnings persistence as measure of earnings quality and ordinary least squares (OLS) model to examine: (1) the moderating effect of institutional investors’ ownership on the association between earnings persistence and PCFs and (2) the association between different types of political connections and earnings persistence.FindingsThis study finds that institutional investors' ownership attenuates weaker earnings quality in PCFs, indicating effective monitoring. However, stronger earnings persistence is associated with PCFs with longer political ties, audited by big four audit firm and with higher CEO power.Originality/valueThis study reveals the lower earnings persistence in PCFs can be attenuated by institutional investors monitoring. However, findings also suggest that earnings persistence in PCFs is affected by duration of political ties, big four audit firm and CEO power. This suggests that PCFs should not be viewed as a homogeneous group of firms.

The effect of internal controls on financial reporting quality in Iranian family firms

2019 ◽  
Vol 9 (3) ◽  
pp. 254-270 ◽  
Author(s):  
Mahmoud Lari Dashtbayaz ◽  
Mahdi Salehi ◽  
Toktam Safdel
Keyword(s):  
Financial Reporting ◽  
Family Firms ◽  
Negative Relationship ◽  
Reporting Quality ◽  
Internal Controls ◽  
Financial Reporting Quality ◽  
Content Type ◽  
Listed Firms ◽  
Significant Negative Relationship

PurposeThe purpose of this paper is to investigate the relationship between internal controls weakness and financial reporting quality and the effect of family ownership on the mentioned relationship in Iranian listed firms.Design/methodology/approachIn this way, the authors included the number of 139 firms from 2013 to 2017, of which 28 were family firms. The hypotheses are analyzed based on panel data and means comparison.FindingsThe results illustrated that weakness in internal controls has a significant negative relationship with financial reporting quality. In other words, internal controls weakness decreases the quality of financial reporting quality. Moreover, the results showed that being familial does not affect the aforementioned relationship.Originality/valueConsequently, there is no suitable criteria to distinguish family firms and there is a need to take them into serious consideration because very few studies have been conducted focusing on this issue in Iran, as it is considered an argumentative subject to be discussed in the Iranian market.

scholarly journals Chief executive officer retirement and auditor’s risk assessment

2020 ◽  
Vol 18 (2) ◽  
pp. 343-361
Author(s):  
Salau Olarinoye Abdulmalik ◽  
Noor Afza Amran ◽  
Ayoib Che-Ahmad
Keyword(s):  
Risk Assessment ◽  
Chief Executive Officer ◽  
Perceived Risk ◽  
Family Firms ◽  
Chief Executive ◽  
Family Businesses ◽  
Moderating Effect ◽  
Content Type ◽  
Client Risk ◽  
The Relationship

Purpose This study aims to examine the unique nature of family firms by investigating the moderating effect of chief executive officer (CEO) identity on CEO career horizon and the auditor’s client risk assessment. Consistent with literature on family businesses, the level of CEO attachment to socio-emotional wealth (SEW) varies among family businesses. Design/methodology/approach This study used a longitudinal sample of 2,063 non-financial family firm-year observations from 2005 to 2016 listed on the Bursa Malaysia. The study used the general method of moments (GMM), which controls for endogeneity concerns. Findings The results reveal that, without the moderating effect of CEO identity, the relationship between CEO career horizon and auditor’s risk assessment is positive, which suggests that the auditor’s risk perception of retiring CEOs is very high. However, the interaction of CEO identity reverses the relationship as evidenced by the negative and significant coefficient on the interacted terms. The finding suggests that the auditor’s perceived risk associated with CEO career horizon is lower in family firms with CEOs affiliated to family members or in which the CEO has an equity stake. Overall, the findings provide compelling evidence that the extent of the CEO’s attachment to the firm’s SEW affects the auditor’s client risk assessment. Practical implications The findings of the study serve as an enlightenment to policymakers such as Bursa Malaysia and Security Commission that within the family-controlled firms, differences still exist; therefore, there might be a need for future regulatory initiative to cater for the specific need of family-controlled firms. Originality/value The study contributes to prior literature by departing from the agency theory adopted in previous studies on auditor choice in family firms under the assumption that family firms are homogenous.

Corporate governance and the quality of CSR disclosure: lessons from an emerging economy

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Husam Ananzeh
Keyword(s):  
Corporate Governance ◽  
Stock Exchange ◽  
Gender Diversity ◽  
Negative Relationship ◽  
Chief Executive ◽  
Board Members ◽  
Board Diversity ◽  
Content Type ◽  
Female Directors

Purpose This paper is motivated by the absence of rules that govern the practice of corporate social responsibility disclosure (CSRD). The purpose of this paper is to investigate the corporate governance factors that impact the quality of CSRD. This study further examines the moderating role of family ownership and educational qualifications of female directors on the relation between board gender diversity and CSRD quality. Design/methodology/approach This study adopts a sample of 94 non-financial companies listed on the Amman Stock Exchange to collect data on CSRD based on a checklist of 41 items for seven years from 2010–2016. The quality of CSRD is measured using a four-dimensional method that encompasses relative quantity, disclosure intensity, degree of accuracy and management outlook. Findings This study finds that CSRD quality is far from satisfactory in Jordan. The results also suggest that board size, auditor type, company size and profitability are positively associated with CSRD quality. On the other hand, factors such as chief executive officer duality, board diversity, ownership concentration and financial leverage are negatively associated with CSRD quality. In addition, the results of the empirical analysis suggest that the negative relationship between the quality of CSRD and the presence of female board members is stronger for family-owned companies. By contrast, the negative relationship between the quality of CSRD and the presence of female board members is weakened when the company has more educated, skilled and qualified female directors. Originality/value The originality of this study is manifested in the development of a quantitative measurement of CSRD quality.

CEO dominance and firm innovation effort

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Nicolette Chatelier Prugsamatz
Keyword(s):  
Least Squares ◽  
Negative Relationship ◽  
Chief Executive ◽  
Ordinary Least Squares ◽  
Firm Innovation ◽  
Content Type ◽  
Ceo Incentives ◽  
Innovation Projects ◽  
The Right

PurposeThe purpose of this paper is to investigate whether innovation effort is lower for firms exhibiting signs of higher chief executive officer (CEO) dominance and whether such CEOs can be incentivized to pursue risky ventures such as innovation projects in line with shareholder's interests that are geared toward the long-term growth of the firm.Design/methodology/approachThe paper utilizes panel data of US publicly listed companies (2007–2016) to address the influence of CEO dominance on firm innovation effort and the moderating effects of incentives in this relationship through ordinary least squares (OLS) estimations. A two-stage least squares (2SLS) technique is also employed to address possible endogeneity. As a robustness check, further analysis is conducted utilizing an alternative proxy for CEO incentive as well as Tobit analysis (with panel-level random effects).FindingsResults from both OLS and Tobit estimations offer two key findings. First, there is a significantly negative relationship between CEO pay slice and firm research and development (R&D) intensity. Second, the interaction effect of CEO incentives and CEO dominance is significant and positive.Research limitations/implicationsWhen provided with the right incentives, such as those that reward long-term performance, dominant CEOs can be incentivized to go after risky ventures like innovation projects that are crucial to promoting the long-term growth of the firm.Originality/valueThis paper utilizes R&D instead of patent outputs as proxies for innovation where the former enables studying R&D efforts for more recent periods compared to prior studies that utilize patent data.

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