Family Ownership and Financial Reporting Decisions(2/2)

Project Details

Description

This three-year project seeks to go beyond the traditional agency perspective by employing the socioemotionalwealth (SEW) framework to explain how the dimensions of ‘Family Control and Influence’ and ‘Family Identity’dimensions affect financial reporting decisions (i.e., earnings management, voluntary disclosure, audit choices andaudit fees) in family firms in Taiwan. These dimensions are used as a broad yet unitary explanatory construct withinthe SEW model without being measured directly. The study shows that the ‘Family Control and Influence’dimension of SEW is more salient for family firms with control-enhancing mechanisms than for non-family firms,while the ‘Family Identity’ dimension is more salient to non-acquired family firms than to non-family firms.In the first year of the project, variations in family ownership configurations and the process by which familiesobtain ownership and how this affects earnings management in family firms are examined. This project expects thatfamily firms with control mechanisms (control-focused family firms) are more likely to engage in earningsmanagement, relative to non-family firms. Given that real earnings management is likely to lead outsider investorsto challenge the prevailing position of the family, they are more likely to engage in accrual earnings managementthan real earnings management. In addition, relative to non-family firms, non-acquired family firms(identity-focused family firms) are less likely to engage in earnings management, and if they do so, they are morelikely to engage in real earnings management than accrual earnings management so as to protect their reputation.In the second year of the project, variations in family ownership configurations and the process by whichfamilies obtain ownership of firms and how this affects voluntary disclosure among family firms, are examined. Itis argued that voluntary disclosure will undermine family control and its competition. Thus, family firms withcontrol mechanisms (control-focused family firms) are less likely to engage in voluntary disclosure relative tonon-family firms and if they do so, they are more likely to engage in forward looking disclosure and hostconference calls. It is argued that more voluntary disclosure would help identity-focused family firms to capturereputational gains. Disclosing unverifiable and less credible information will damage the good standing ofidentity-focused firms in the eyes of external stakeholders. Monthly earnings disclosures are perceived as beingverifiable, credible and history voluntary disclosure. Thus, this it is predicted that non-acquired family firms(identity-focused family firms) are more likely to engage in voluntary disclosure relative to non-family firms, andthat when they do so, they are more likely to voluntarily disclose monthly earnings.In the third year the project examines how variations in family ownership configurations and the process bywhich families have obtained the ownership of the firm will affect auditor choices and audit fees Becausehigh-quality auditors limit the control-focused family firm’s ability to manipulate accounting information, it isargued that, relative to non-family firms, family firms with control enhancing mechanisms (control-focused familyfirms) are less likely to appoint high-quality auditors. Appointing high-quality auditors helps identity-focusedfamily owners to satisfy their desire to preserve the family’s image and reputation in the market; therefore,non-acquired family firms (identity-focused family firms) are more likely to appoint high-quality auditors thannon-family firms. I expect that family firms with control enhancing mechanisms (non-acquired family firms) incurmore (lower) audit fees relative to non-family firms.
StatusFinished
Effective start/end date1/08/1831/07/20

UN Sustainable Development Goals

In 2015, UN member states agreed to 17 global Sustainable Development Goals (SDGs) to end poverty, protect the planet and ensure prosperity for all. This project contributes towards the following SDG(s):

  • SDG 5 - Gender Equality
  • SDG 11 - Sustainable Cities and Communities
  • SDG 17 - Partnerships for the Goals

Keywords

  • accrual-based earnings management
  • acquired family firms
  • real earningsmanagement
  • auditor choice
  • control-enhancing mechanisms
  • control-focused family firm
  • earnings management
  • forward looking information
  • identity-focused family firms
  • monthly

Fingerprint

Explore the research topics touched on by this project. These labels are generated based on the underlying awards/grants. Together they form a unique fingerprint.