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Founder Succession and Accounting Properties

Listed author(s):
  • Fan, Joseph P.H.
  • Wong, T.J.
  • Zhang, Tianyu
Registered author(s):

    Using a sample of 231 entrepreneurial firm successions in Hong Kong, Singapore, and Taiwan, we find that firms' unsigned discretionary accruals decrease while timely loss recognition increases subsequent to successions, suggesting a shift in accounting toward a less insider-based system. We argue that the change in accounting properties is due to the loss of specialized assets in the succession process, such as the entrepreneur's reputation and political/social networks, inducing the firm to adapt to market-based rather than relationship-based contracting. Moreover, we find that the extent of the shift in accounting is larger in founder successions than in subsequent (non-founder) successions, as the dissipation of specialized assets is greatest in founder successions.

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    Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2009-06.

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    Length: 46 p.
    Date of creation: Nov 2009
    Handle: RePEc:hit:hitcei:2009-06
    Note: April 2009
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