Does Founding Family Control Affect Earnings Management? An Empirical Note

Abstract

Because of concentrated ownership stakes, board composition, and longer investment horizons, founding-family controlled firms provide an interesting setting for examining issues relating to governance and control. Anderson and Reeb (2003a, 2003b, 2004), find that the founding-family controlled structure results in superior stock market and accounting performance and lower cost of debt compared to their non-family controlled counterparts. We add to their findings by examining the relationships between founding family control and earnings management. The unique characteristics of family controlled firms could insulate these firms from pressures to manage earnings. Our results support this notion, and find that family firms are significantly less likely to manage earnings.

Keywords: earnings management, family firms, family-owned

JEL Classification: G30, G32, G34