Family ownership and earnings quality of Thai firms

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.

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Political connections, family firms and earnings quality

Management Research Review ◽

10.1108/mrr-05-2017-0136 ◽

2018 ◽

Vol 41 (4) ◽

pp. 414-432 ◽

Cited By ~ 11

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.

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Family ownership and financial reporting quality: Iranian evidence

Journal of Family Business Management ◽

10.1108/jfbm-09-2017-0026 ◽

2018 ◽

Vol 8 (3) ◽

pp. 339-356 ◽

Cited By ~ 3

Author(s):

Mahmoud Mousavi Shiri ◽

Mahdi Salehi ◽

Fatemeh Abbasi ◽

Shayan Farhangdoust

Keyword(s):

Financial Reporting ◽

Family Firms ◽

Stock Exchange ◽

Accounting Information ◽

Reporting Quality ◽

Audit Fees ◽

Financial Reporting Quality ◽

Family Ownership ◽

Content Type

PurposeIn the process of reporting accounting information, the auditor’s objective is to detect possible misstatements and errors in accounting information. Audit evidence aids auditors in providing reasonable assurance about the quality of financial reporting. Studying the quality of family firms’ financial reporting is of higher importance relative to non-family firms due to lower risk of accounting manipulation. Therefore, the purpose of this paper is to examine the relationship between family ownership structure and financial reporting quality from an auditing perspective.Design/methodology/approachTo analyze the research hypotheses, the authors use a sample data consisted of 221 companies listed on the Tehran Stock Exchange (including 52 family and 169 non-family firms) over a five-year span from 2011 to 2015.FindingsUsing multivariate regression analysis of panel data, our results indicate that audit risk in family firms is lower than their counterparts. Likewise, the findings are indicative of lower audit fees paid by family firms as compared to non-family ones. The authors also find that auditors put more effort in family firms and thus audit effort is more significant for these kinds of firms.Originality/valueThe study focuses on family ownership and financial reporting quality in a developing country like Iran and the results of the study may be beneficial to other developing nations, as Iran stock market possesses some unique features which are not normally prevailing in other equity markets, even in the Middle East.

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Socio-emotional wealth preservation and KPI voluntary disclosure quality

Journal of Financial Reporting and Accounting ◽

10.1108/jfra-09-2019-0113 ◽

2020 ◽

Vol 18 (3) ◽

pp. 459-482

Author(s):

Saoussen Boujelben ◽

Chourouk Boujelben

Keyword(s):

Voluntary Disclosure ◽

Family Firms ◽

Family Members ◽

Family Influence ◽

Disclosure Quality ◽

Content Type ◽

The Family ◽

And Control ◽

Practical Implications

Purpose The purpose of this paper is to examine the effect of the emotional attachment strength of family members to their business on the quality of the voluntary disclosure of their key performance indicator (KPI). More specifically, the authors focused on the effect of two dimensions of the socio-emotional theory, i.e. “family influence and control” and “firm dynasty succession.” Design/methodology/approach The authors performed a content analysis of annual reports for a sample of 87 French families listed in CAC All-Tradable to calculate a disclosure quality index of KPI. The authors proxied the “family influence and control” by the proportion of family members appointed in the board. To identify the “firm dynasty succession” concern, the authors classified firms according to the generation they belonged to. The authors estimated a cross-sectional linear regression model to meet the research objective. Findings This study confirms the role of the family affective attachment in decreasing the quality of KPI disclosure in such a way to preserve its socio-emotional wealth. The family firms’ principals who desire to sustain their control on the firm, to perpetuate the business for future generations and to protect their emotional wealth tend to avoid the disclosure of credible and reliable KPI information. Practical implications The findings have meaningful practical implications. First, they provide relevant insights into the regulatory bodies of the financial reporting regarding the increasing appeal for making KPI disclosure mandatory. Second, as the family businesses are the most widespread proprietorship in the French context, the effect of the family agenda on the quality of the KPI should be of interest to various policymakers and financial statements’ users of such firms. Third, the results inform nonfamily shareholders regarding the importance of selecting representatives on the board that should share similar interest with regard to KPI disclosure. Social implications From a societal perspective, this study is relevant in taking into account the critical role the family businesses have in the French economy. This study should help the minority shareholders to protect their interests and maximize their wealth within the family firm because it sheds light on the influence that family members have on hiding key information on the firm’s real performance. Originality/value To the best of the authors’ knowledge, no prior study in the family firms literature has examined the quality of voluntary disclosure of KPI. Although most previous studies merely compared family and nonfamily firms in terms of voluntary disclosure, the authors acknowledge and address the heterogeneity between family firms. The authors contribute to the few prior empirical validations of SEW implication on voluntary disclosure decisions by testing the effect of an additional dimension, which is family dynasty.

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CEO career horizons and earnings quality in family firms

Asian Review of Accounting ◽

10.1108/ara-02-2019-0029 ◽

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 ◽

Are earnings quality attributes reflected in financial strength ratings?

American Journal of Business ◽

10.1108/ajb-12-2013-0073 ◽

2014 ◽

Vol 29 (3/4) ◽

pp. 293-311 ◽

Cited By ~ 2

Author(s):

Daniel Ames ◽

Chris S. Hines ◽

Jomo Sankara

Keyword(s):

Insurance Industry ◽

Earnings Quality ◽

Earnings Persistence ◽

Financial Health ◽

Accrual Quality ◽

Content Type ◽

Financial Strength ◽

Reported Earnings ◽

The Impact

Purpose – The purpose of this paper is to examine whether earnings quality attributes are reflected in AM best's financial strength ratings (FSRs), a measure widely used in the insurance industry to assess financial health. Design/methodology/approach – Using a sample of insurance companies during the period 2006-2012, the authors measure the quality of reported earnings using three accounting-based measures: earnings persistence, accrual quality, and earnings smoothness. Findings – The authors find that better earnings persistence, higher accrual quality, and less earnings smoothing are reflected in higher FSRs for both public and private insurers, with the magnitude of the effect greater for private insurers. Originality/value – This is the first study of which the authors are aware that seeks to understand the impact, if any, of variations in the quality of reported financial information on the perceived financial health of firms by ratings agencies in the insurance industry. The authors also include a novel research design in assessing the determinants of financial health ratings. Users of FSRs should be aware of the impact of ownership structure on ratings agencies’ propensity to incorporate reported earnings attributes in their ratings.

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A Study of the Earnings Quality of Family Firms

SSRN Electronic Journal ◽

10.2139/ssrn.1736549 ◽

2011 ◽

Author(s):

Stefano Mengoli ◽

Federica Pazzaglia ◽

Elena Sapienza

Keyword(s):

Family Firms ◽

Earnings Quality

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Founding Family Ownership and the Selection of Industry Specialist Auditors

Accounting Horizons ◽

10.2308/acch-50714 ◽

2014 ◽

Vol 28 (2) ◽

pp. 261-276 ◽

Cited By ~ 19

Author(s):

Fei Kang

Keyword(s):

Financial Reporting ◽

Family Firms ◽

Structure And Agency ◽

Founding Family ◽

Using Data ◽

Dual Class Shares ◽

Dual Class ◽

Selection Of ◽

Industry Specialist

SYNOPSIS This study examines how family firms' unique ownership structure and agency problems affect their selection of industry-specialist auditors. Using data from Standard & Poor's (S&P) 1500 firms, the results show that family firms are more likely to appoint industry-specialist auditors than non-family firms, which suggests that family firms have strong incentives to signal the quality of financial reporting. Additional analysis indicates that due to the potential entrenchment problems, family firms with family member CEOs or with dual-class shares have even a higher tendency to hire industry-specialist auditors to signal their disclosure quality.

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Limiting role of resource dependence: an examination of director interlocks, board meetings and family ownership

Cross Cultural & Strategic Management ◽

10.1108/ccsm-01-2020-0006 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Vidya Sukumara Panicker ◽

Rajesh Srinivas Upadhyayula

Keyword(s):

Board Of Directors ◽

Resource Dependence ◽

Family Firms ◽

Emerging Market ◽

Resource Provisioning ◽

Independent Directors ◽

Family Ownership ◽

Independent Director ◽

Content Type

PurposeThis paper attempts to examine the activity and involvement of board of directors in internationalization activities of firms in emerging markets, by evaluating the resource provisioning roles of interlocks provided by board of directors, and the frequency of board meetings. We demonstrate that the effectiveness of board involvement is contingent upon the levels of family ownership in firms since family ownership could impact the firm’s ability to utilize the presence of different types of board members.Design/methodology/approachThe authors test our hypotheses on a sample of listed Indian companies, extracted from the Prowess database published by the Centre for Monitoring Indian Economy (CMIE), a database of the financial performance of Indian companies. On a panel of 3,133 firm years of 605 unique Indian firms with foreign investments, over a time period of 2006–2017, the authors apply different estimation techniques.FindingsThe results demonstrate that both board meeting frequency and director interlocks are instrumental in supporting internationalization activities in emerging market firms. However, family ownership moderates the role of insider and independent interlocks on internationalization investments in different ways; the authors find that interlocks provided by independent directors support internationalization activities in family firms, whereas those provided by insider directors do not. Further, the study also finds that board meetings are less effective in internationalization of family firms.Practical implicationsThe authors conclude that family firms aiming at international diversification require to develop more connected and networked independent directors to enable internationalization in firms. While independent director interlocks enhance the international investments, it is also useful to know that board meetings are ineffective in utilizing the resources in family firms. This points to the possibility that family firms should device mechanisms to integrate family meetings with board meetings so that they can utilize the within-family processes to aid in their internationalization decisions.Originality/valueThe study contributes to resource dependence theory by understanding its limiting role in family firms. Theoretically, it helps delineate the limiting resource provision role of the insider directors vis-à-vis independent directors. The authors argue that the resource provision role of insider director interlocks does not effectively help in internationalization in comparison to independent director interlocks in family-dominated firms. Consequently, the study shows the limiting role of resource provision and utilization by family-owned firms in comparison to non-family-owned firms.

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The strength of the board on sustainability assurance decisions

Journal of Small Business and Enterprise Development ◽

10.1108/jsbed-02-2017-0044 ◽

2017 ◽

Vol 24 (4) ◽

pp. 863-886 ◽

Cited By ~ 5

Author(s):

Jennifer Martinez-Ferrero ◽

Lázaro Rodríguez-Ariza ◽

Isabel María García-Sánchez

Keyword(s):

Random Effects ◽

Design Methodology ◽

Family Firms ◽

Positive Impact ◽

Family Businesses ◽

Family Ownership ◽

Logit Models ◽

Board Size ◽

Content Type ◽

Sustainability Reports

Purpose The purpose of this paper is to analyze how family ownership influences the strength of the board’s monitoring function in companies’ decisions regarding the assurance of sustainability reports. Design/methodology/approach The international sample consists of 536 companies operating in more stakeholder-oriented countries during the period 2007-2014. The paper proposes alternative logit models of analysis using the random-effects estimator. Findings The results provide evidence that a firm’s sustainability assurance and its choice of accounting professionals as higher quality assurers are positively associated with board size and independence. The main result is the positive impact of family businesses on these assurance issues. The paper evidences the greater orientation toward sustainability issues of family businesses. Furthermore, it verifies the greater impact of board size on family firms’ assurance demand. Originality/value This study sheds some light on the unexplored topic of sustainability assurance in family firms. One of the differentiating aspects with respect to previous studies is the consideration of the moderating factor of family property. This study also contributes to the understanding of family firms’ demand for assurance and its practitioners, and the literature’s focus on its determinants.

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Small family business in Russia: formal or informal?

International Journal of Sociology and Social Policy ◽

10.1108/ijssp-04-2017-0046 ◽

2018 ◽

Vol 38 (9/10) ◽

pp. 809-822 ◽

Cited By ~ 7

Author(s):

Alexander Chepurenko

Keyword(s):

Family Business ◽

Family Firms ◽

Family Members ◽

Family Businesses ◽

Entrepreneurial Activity ◽

Small Scale ◽

Content Type ◽

Small Family ◽

Scale Family ◽

Russian State

Purpose The purpose of this paper is to deal with informal entrepreneurial activity of micro and small family businesses in the specific transitional environment. Design/methodology/approach The paper uses two cases – an informal micro business (“marginal” family business), and a formal retail small firm (“simpleton” family firm), respectively, of a panel conducted in 2013–2015 in Moscow. Findings First, the real distribution of responsibilities between family members is informal; it relies more on interpersonal trust and “common law.” Second, exactly the ease of governing such trust-based businesses for the founders’ generation sets limits of succession of small-scale family businesses. Third, as trust in the state is very low, the policy of Russian authorities to quickly force informal entrepreneurs to become legalized is substantially wrong; the results would be either a transformation of “simpleton” into “marginal” businesses or quitting business. Research limitations/implications Research limitations of the study are the number of observations and the localization of the panel only in the capital of Russia. Practical implications The fundamental failure of Russian State policy toward small-scale family businesses is its attempt to convince “marginal” to formalize and to oppress “simpleton” family businesses pushing them into informality. In fact, it should be designed vice versa: tolerate “marginal” businesses and let them to “live and die” while shaping a friendly environment for “simpleton” family firms. Originality/value The paper argues that the most important facet of informality in small family entrepreneurship is the informal property rights and governance duties’ distribution among the family members.

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