Earnings Management in Family Firms: Evidence from R&D Cost Capitalization in Italy

18 Pages Posted: 18 Feb 2008

See all articles by Annalisa Prencipe

Annalisa Prencipe

Bocconi University - Department of Accounting

Garen Markarian

HEC - University of Lausanne

Lorenzo Pozza

Bocconi University - Department of Accounting

Abstract

Recent accounting-related scandals have underscored the prevalence of earnings management in financial markets. This article provides empirical evidence on the motivations for earnings management in publicly listed family companies, highlighting the differences from public nonfamily firms. Basing our predictions on an analysis of the salient characteristics of family firms in both an agency and a stewardship framework, we hypothesize that family firms are less sensitive to income-smoothing motivations than are nonfamily firms, while they are similarly motivated to manage earnings for debt-covenant and leverage-related reasons. We test our hypotheses by looking at a specific accrual, R&D cost capitalization, where statistical tests confirm our hypothesized relationships.

JEL Classification: M41, M43, G34, D82, M47

Suggested Citation

Prencipe, Annalisa and Markarian, Garen and Pozza, Lorenzo, Earnings Management in Family Firms: Evidence from R&D Cost Capitalization in Italy. Family Business Review, Vol. 21, No. 1, pp. 71-88, March 2008, Available at SSRN: https://ssrn.com/abstract=1094108 or http://dx.doi.org/10.1111/j.1741-6248.2007.00112.x

Annalisa Prencipe (Contact Author)

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

Garen Markarian

HEC - University of Lausanne ( email )

UNIL Dorigny
Lausanne, Lausanne 1015
Switzerland

Lorenzo Pozza

Bocconi University - Department of Accounting ( email )

Via Roentgen 1
Milan, 20136
Italy

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