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Real earnings management in family firms: Evidence from an emerging economy

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  • Razzaque, Rushdi Md. Rezaur
  • Ali, Muhammad Jahangir
  • Mather, Paul R.

Abstract

We examine the relationship between family ownership and real earnings management in an emerging economy context, Bangladesh. Existing literature reports evidence of minority expropriations by the controlling shareholders in weaker investor protection environments. Based on that argument, we hypothesize and provide evidence that family firms in Bangladesh engage in more real earnings management (REMs) compared to non-family firms during the period 2006-2011. Moreover, we obtain evidence of existence of curvilinear relationships between family ownership and REMs. In Bangladesh, family firms manifest higher level of REMs at a relatively earlier stage of ownership concentration and this pattern reverses once family ownership passes a certain ownership threshold. In addition, we also provide evidence that REMs are associated with lower future performance.

Suggested Citation

  • Razzaque, Rushdi Md. Rezaur & Ali, Muhammad Jahangir & Mather, Paul R., 2016. "Real earnings management in family firms: Evidence from an emerging economy," Pacific-Basin Finance Journal, Elsevier, vol. 40(PB), pages 237-250.
    • Handle: RePEc:eee:pacfin:v:40:y:2016:i:pb:p:237-250
    DOI: 10.1016/j.pacfin.2015.12.005
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    13. Attig, Najah & Chen, Ruiyuan & El Ghoul, Sadok & Guedhami, Omrane & Kwok, Chuck & Pittman, Jeffrey, 2020. "Are insiders equal? Evidence from earnings management in closely held East Asian firms," Research in International Business and Finance, Elsevier, vol. 54(C).
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