Founding Family Ownership and Earnings Quality
AbstractThis study investigates the relation between founding family ownership and earnings quality using data from the Standard & Poor's 500 companies. Existing literature has documented that financial reporting is of higher quality when firms have stronger corporate governance mechanisms and when there is greater demand for quality financial reporting. I provide two competing theories of the effect of founding family ownership on the demand and supply of earnings quality: the entrenchment effect and the alignment effect. The empirical results show that, on average, founding family ownership is associated with higher earnings quality. In particular, I find consistent evidence that founding family ownership is associated with lower abnormal accruals, greater earnings informativeness, and less persistence of transitory loss components in earnings. In addition, the results suggest a nonlinear relation between family ownership and earnings quality. Copyright University of Chicago on behalf of the Institute of Professional Accounting, 2006.
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Bibliographic InfoArticle provided by Wiley Blackwell in its journal Journal of Accounting Research.
Volume (Year): 44 (2006)
Issue (Month): 3 (06)
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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0021-8456
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