A Study of the Earnings Quality of Family Firms

2011 ◽  
Author(s):  
Stefano Mengoli ◽  
Federica Pazzaglia ◽  
Elena Sapienza
Keyword(s):  
Family Firms ◽  
Earnings Quality

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.

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.

The Effect of Integrating Reporting on Earnings Quality: A Study of Family Firms in Indonesia

2018 ◽  
Vol 3 (3) ◽  
pp. 34-40
Author(s):  
Shanti Shanti ◽  
Bambang Tjahjadi ◽  
I Made Narsa
Keyword(s):  
Financial Reporting ◽  
Family Firms ◽  
Stock Exchange ◽  
Earnings Quality ◽  
Mining Industry ◽  
Jel Classification ◽  
Integrated Reporting ◽  
Annual Reporting ◽  
New Type

Objective - The implementation of integrated reporting (IR), which is a composite of financial and non-financial information, in one single report makes financial reporting more comprehensive and more transparent. Transparent information in IR gives annual reporting of family firms a higher earnings quality. Methodology/Technique - This research aims to examine the effect of IR on earnings quality of family firms in the mining industry on the Indonesian Stock Exchange between 2014 and 2017. Findings - The results of this study indicate that there is a positive and significant relationship between integrating reporting and earnings quality. These results confirm that firms that use integrated reporting tend to show higher earnings quality. The study also finds that larger sized companies and larger leverage amounts equals a higher volume of information disclosed. Novelty – The motivation of this research is to examine IR issues that are relatively new. Type of Paper - Empirical. Keywords: Earnings Quality; Family Firms; Financial Reporting; Indonesia; Integrated Reporting. JEL Classification: M40, M41, M49.

U.S.-Listed Foreign Companies' Choice of a U.S.-Based versus Home Country-Based Big N Principal Auditor and the Effect on Audit Fees and Earnings Quality

2015 ◽  
Vol 29 (3) ◽  
pp. 631-666 ◽  
Author(s):  
Sharad C. Asthana ◽  
K. K. Raman ◽  
Hongkang Xu
Keyword(s):  
Financial Reporting ◽  
Home Country ◽  
Earnings Quality ◽  
Audit Fees ◽  
Foreign Companies ◽  
Two Factors ◽  
Just Price ◽  
Reporting Environment ◽  
The U.S

SYNOPSIS We examine why U.S.-listed foreign companies choose to have a U.S.-based (rather than home country-based) Big N firm as their principal auditor for SEC reporting purposes and the effects of that choice for audit fees and earnings quality. We find that the likelihood of the Big N principal auditor being U.S.-based is decreasing in client size and the level of investor protection in the home country, and increasing in the proportion of income earned outside the home country. We also find compelling evidence that U.S.-based Big N auditors are associated with higher-quality earnings (albeit for a higher fee), despite two factors—the greater distance between the U.S.-based (vis-à-vis home country-based) Big N auditor and the client, and the likelihood that much of the audit work is done outside the U.S.—which potentially could lower the earnings quality of the U.S.-listed foreign client when the Big N principal auditor is U.S.-based. Overall, our study suggests that the higher fees associated with a U.S.-based Big N principal auditor is not just price protection; rather, U.S.-based Big N principal auditors are also improving the financial reporting environment by reporting higher-quality audited earnings for their U.S.-listed foreign clients. JEL Classifications: L11; L15; M42.

Founding Family Ownership and the Selection of Industry Specialist Auditors

2014 ◽  
Vol 28 (2) ◽  
pp. 261-276 ◽  
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.

scholarly journals Heterogeneity in earnings quality between different classes of companies after IFRS adoption: evidence from Brazil

2017 ◽  
Vol 28 (73) ◽  
pp. 113-131
Author(s):  
Roberto Black ◽  
Sílvio Hiroshi Nakao
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Value Relevance ◽  
Earnings Quality ◽  
Economic Incentives ◽  
Net Income ◽  
Accounting Earnings ◽  
Ifrs Adoption ◽  
Before And After

ABSTRACT This paper aims to investigate the existence of heterogeneity in earnings quality between different classes of companies after the adoption of the International Financial Reporting Standards (IFRS). IFRS adoption is generally associated with an increase in the quality of financial statements. However, companies within the same country are likely to have different economic incentives regarding the disclosure of information. Thus, treating companies equally, without considering the related economic incentives, could contaminate earnings quality investigations. The case of Brazil is analyzed, which is a country classified as code-law, in which tax laws determined accounting practice and in which IFRS adoption is mandatory. First, Brazilian companies listed on the São Paulo Stock, Commodities, and Futures Exchange (BM&FBOVESPA) were separated into two classes: companies issuing American Depositary Receipts (ADRs) before IFRS adoption and companies that did not issue ADRs until the adoption of IFRS. Then, this second class of companies was grouped, using cluster analysis, into two different subclasses according to economic incentives. Based on the groups identified, the quality of accounting earnings is tested for each class of the companies before and after IFRS adoption. This paper uses timely recognition of economic events, value relevance of net income, and earnings management as proxies for the quality of accounting earnings. The results indicate that a particular class of companies began showing conditional conservatism, value relevance of net income, and lower earnings management after IFRS adoption. On the other hand, these results were not found for the two other classes of companies.

Accounting Standards and Earnings Quality — Evidence from Registered ADRs

2018 ◽  
Vol 21 (04) ◽  
pp. 1850022
Author(s):  
Yaseen S. Alhaj-Yaseen ◽  
Kean Wu ◽  
Leslie B. Fletcher
Keyword(s):  
Financial Reporting ◽  
Earnings Quality ◽  
Accounting Standards ◽  
Securities And Exchange Commission ◽  
High Quality ◽  
Reporting Standard ◽  
International Financial Reporting Standard ◽  
The Us ◽  
Us Gaap

This paper examines the changes in earnings quality of registered American Depositary Receipts (ADRs) as a result of switching accounting standards. We aim to shed light on the potential impact of International Financial Reporting Standard (IFRS) adoption on US firms. A suboptimal approach to achieve this goal is through examination of US firms’ surrogates such as ADRs. Unlike previous studies, we made a distinction between registered and unregistered ADRs and affirmed that registered ADRs are the closest surrogates with which to conduct our analysis because they are exclusively required to adhere to the Securities and Exchange Commission (SEC)’s stringent disclosure requirements. When cross-listing their equity on the US exchanges, foreign issuers can file their financial reports with the SEC using IFRS, US GAAP (generally accepted accounting principles), or their domestic GAAP with reconciliation to US GAAP. An improvement in earnings quality is documented when ADRs adopt US GAAP or IFRS versus domestic GAAP. However, when the comparison is made between US GAAP and IFRS, no difference in earnings quality is documented. These results indicate that switching to high-quality accounting standards is likely to improve earnings quality. This improvement is maximized when the difference between reporting standards is high and minimized if otherwise. Our conclusion is that the adoption of IFRS in the US is unlikely to change earnings quality of local issuers. Moreover, we drew a distinction between reconciliation with and adoption of high-quality accountings standards and find that while the former can enhance earnings quality, the latter can further improve it.

Earnings quality of Taiwanese group firms

2014 ◽  
Vol 21 (2) ◽  
pp. 134-156 ◽  
Author(s):  
Yan-Jie Yang ◽  
Qian Long Kweh ◽  
Ruey-Ching Lin
Keyword(s):  
Earnings Quality
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