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Founding Family Ownership and Earnings Quality

  • DECHUN WANG
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    This 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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    Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

    Volume (Year): 44 (2006)
    Issue (Month): 3 (06)
    Pages: 619-656

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    Handle: RePEc:bla:joares:v:44:y:2006:i:3:p:619-656
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