Founding Family Ownership and Earnings Quality

Posted: 23 Nov 2005

Abstract

This study investigates the relation between founding family ownership and earnings quality using data from the S&P 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 non-linear relation between family ownership and earnings quality.

Keywords: family ownership, corporate governance, earnings quality, abnormal accruals, earnings informativeness, persistence, transitory gains and losses, conservatism

JEL Classification: M41, M43, G34, G12

Suggested Citation

Wang, Dechun, Founding Family Ownership and Earnings Quality. Journal of Accounting Research, Forthcoming, Available at SSRN: https://ssrn.com/abstract=851307

Dechun Wang (Contact Author)

Texas A&M University ( email )

430 Wehner
College Station, TX 77843-4353
United States

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