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Organizational structure and earnings quality of private and public firms

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  • Massimiliano Bonacchi

    (University of Bolzano)

  • Antonio Marra

    (Bocconi University)

  • Paul Zarowin

    (New York University)

Abstract

We examine how heterogeneity in organizational structure affects private firm earnings quality in the European Union. Organizational structure refers to whether the firm is organized as a single legal entity (standalone) or as a business group. Private firms can be organized either way, while public firms are de facto groups. Even though private firms are not affected by market forces, we show that private business groups face greater stakeholder pressure for earnings quality than do standalone firms, while standalone firms have stronger tax minimization incentives. Due to these differences in nonmarket forces, private business groups have higher earnings quality than standalone firms. This heterogeneity among private firms is an important unexplored factor in the study of private firms, affecting the comparison between public and private firm earnings quality. We find that overall, public firms have higher earnings quality than private firms but this relation reverses when we control for nonmarket forces by examining business groups only.

Suggested Citation

  • Massimiliano Bonacchi & Antonio Marra & Paul Zarowin, 2019. "Organizational structure and earnings quality of private and public firms," Review of Accounting Studies, Springer, vol. 24(3), pages 1066-1113, September.
    • Handle: RePEc:spr:reaccs:v:24:y:2019:i:3:d:10.1007_s11142-019-09495-y
    DOI: 10.1007/s11142-019-09495-y
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    4. Floropoulos, Stylianos & Tsipouridou, Maria & Spathis, Charalambos, 2024. "Book-tax conformity and earnings management: A research agenda," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 54(C).
    5. Tobar Arias, José E. & Mora Valencia, Andrés & Benavides Franco, Julián, 2023. "Earnings management to avoid losses: Evidence in non-listed Colombian companies," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 53(C).
    6. Juan Pedro Sánchez‐Ballesta & José Yagüe, 2021. "Financial reporting incentives, earnings management, and tax avoidance in SMEs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 48(7-8), pages 1404-1433, July.
    7. Yang, Jingwen & Hemmings, Danial & Jaafar, Aziz & Jackson, Richard H.G., 2022. "The real earnings management gap between private and public firms: Evidence from Europe," Journal of International Accounting, Auditing and Taxation, Elsevier, vol. 49(C).

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    More about this item

    Keywords

    Private firms; Business groups; Standalone; Stakeholder incentives; Earnings quality; Non-market forces;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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