Exploring the Causes of Accounting Restatements by Family Firms

27 Pages Posted: 18 Dec 2013

See all articles by Shu‐Hui Sue

Shu‐Hui Sue

National Taichung University of Technology and Science

Chen‐Lung Chin

National Chengchi University

Ann Ling‐Ching Chan

National Chengchi University (NCCU)

Multiple version iconThere are 2 versions of this paper

Date Written: November/December 2013


Prior research shows that family firms have better earnings quality than non‐family firms in common‐law countries and highly developed markets. In contrast, we do not find a significant difference in the financial reporting quality between family and non‐family firms in the context of a civil‐law system and less developed market. We show that the financial reporting quality of family firms is conditioned on: (1) the divergence between the controlling shareholders’ voting rights and their cash flow rights, and (2) the firm's reputation for integrity, while these two conditions do not explain the restatement likelihood for non‐family firms. Moreover, when accounting irregularities are detected in the case of family firms, they are associated with more serious accounting restatements. Together, these results imply that the severity of the conflict between ultimate and minority shareholders, and a lack of integrity, explain the propensity for making financial restatements among family firms in a regime characterized as having weak investor protection and concentrated ownership structures.

Keywords: accounting restatement, agency problems, family firms, integrity

Suggested Citation

Sue, Shu-Hui and Chin, Chen Lung and Chan, Ann, Exploring the Causes of Accounting Restatements by Family Firms (November/December 2013). Journal of Business Finance & Accounting, Vol. 40, Issue 9-10, pp. 1068-1094, 2013. Available at SSRN: https://ssrn.com/abstract=2369086 or http://dx.doi.org/10.1111/jbfa.12040

Shu-Hui Sue (Contact Author)

National Taichung University of Technology and Science ( email )

129 Sec.3, Sanmin Rd.
Taichung 40401, Taiwan
Taichung, Taiwan 404

Chen Lung Chin

National Chengchi University ( email )

No. 64, Chih-Nan Road
Section 2
Wenshan, Taipei 11623

Ann Chan

National Chengchi University (NCCU) ( email )

#64, Chih-Nan Rd. Sec. 2
Wen-Shan District
Taipei, 116

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