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Family control, accounting misstatements, and market reactions to restatements: Evidence from China

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  • Ma, Liangbo
  • Ma, Shiguang
  • Tian, Gary

Abstract

We examine the impact of family control on the likelihood of accounting misstatements and on market reactions to subsequent restatements. Using a matched-firm approach, we find that family control overall reduces the incidence of misstatements, consistent with the notion that controlling families have a greater concern for reputation than nonfamily blockholders. However, compared to nonfamily firm restatements, restatements announced by family-controlled firms trigger significantly more negative market reactions. We attribute the more negative market reactions to the greater loss in reputation and higher investor scepticism of the credibility of corporate insiders for family firms than for nonfamily firms following restatements.

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  • Ma, Liangbo & Ma, Shiguang & Tian, Gary, 2016. "Family control, accounting misstatements, and market reactions to restatements: Evidence from China," Emerging Markets Review, Elsevier, vol. 28(C), pages 1-27.
    • Handle: RePEc:eee:ememar:v:28:y:2016:i:c:p:1-27
    DOI: 10.1016/j.ememar.2016.06.001
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    More about this item

    Keywords

    Family firm; Restatement; Financial reporting; Market reaction;
    All these keywords.

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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