Abstract

http://ssrn.com/abstract=1250102
 
 

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Conservatism and Equity Ownership of the Founding Family


Shuping Chen


University of Texas at Austin - Red McCombs School of Business

Xia Chen


Singapore Management University

Qiang Cheng


Singapore Management University

April 2013

AAA 2010 Financial Accounting and Reporting Section (FARS) Paper

Abstract:     
We investigate the impact of founding family ownership on accounting conservatism. Family ownership is characterized by large, under-diversified equity stake and long investment horizon. These features give family owners both the incentives and the ability to implement conservative financial reporting to reduce legal liability and mitigate agency conflicts with other stakeholders. Since CEOs can have different incentives toward conservatism, we focus on ownership of non-CEO founding family members in our investigation. We find that conservatism increases with non-CEO family ownership, supporting our prediction. This relationship becomes insignificant in family firms with founders serving as CEOs, either due to founder CEOs’ incentives to implement more conservative financial reporting or their power to thwart non-CEO family owners’ demand for conservatism. Overall, our paper adds to the literature on the impact of founding family ownership on firms’ financial reporting policy. Our findings are consistent with the recent evidence in the family firm literature that founding families exhibit substantial incentives to reduce agency and litigation costs and to maximize firm value.

Number of Pages in PDF File: 49

Keywords: Family firms, conservatism, family ownership, family control

JEL Classification: G32, M40, M41

working papers series


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Date posted: August 24, 2008 ; Last revised: May 1, 2013

Suggested Citation

Chen, Shuping and Chen, Xia and Cheng, Qiang, Conservatism and Equity Ownership of the Founding Family (April 2013). AAA 2010 Financial Accounting and Reporting Section (FARS) Paper. Available at SSRN: http://ssrn.com/abstract=1250102 or http://dx.doi.org/10.2139/ssrn.1250102

Contact Information

Shuping Chen
University of Texas at Austin - Red McCombs School of Business ( email )
Austin, TX 78712
United States
521.471.5328 (Phone)
Xia Chen (Contact Author)
Singapore Management University ( email )
60 Stamford Rd.
Singapore 178900
Singapore

Qiang Cheng
Singapore Management University ( email )
60 Stamford Road
Singapore, 178900
Singapore

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