Family Firms, Institutional Development and Earnings Quality: Does Family Status Complement or Substitute for Weak Institutions?

39 Pages Posted: 15 Mar 2017 Last revised: 22 Apr 2019

See all articles by Stefano Mengoli

Stefano Mengoli

University of Bologna - Department of Management

Federica Pazzaglia

University College Dublin

Sandro Sandri

University of Bologna

Date Written: March 13, 2017

Abstract

This study combines insights from the socioemotional wealth perspective and institutional and resource-based theories to examine the earning quality of family and nonfamily firms operating in countries characterized by different levels of institutional development. Results based on a cross-sectional sample of firms from 12 European countries show that family status and a country’s level of institutional development are positively related to earnings quality. They also show that institutional development moderates the relationship between family status and earnings quality. Comparing insider-oriented countries that are characterized by lower regulatory and financial development with outsider-oriented countries that are characterized by higher regulatory and financial development, we found that family firms have a higher earnings quality in insider-oriented countries than in outsider-oriented ones. Thus, our study finds support for a substitution effect, whereby family status compensates for the limited capacity of less developed regulations and markets to induce virtuous financial reporting behaviors.

Forthcoming in Journal of Management and Governance

Suggested Citation

Mengoli, Stefano and Pazzaglia, Federica and Sandri, Sandro, Family Firms, Institutional Development and Earnings Quality: Does Family Status Complement or Substitute for Weak Institutions? (March 13, 2017). Available at SSRN: https://ssrn.com/abstract=2932069 or http://dx.doi.org/10.2139/ssrn.2932069

Stefano Mengoli (Contact Author)

University of Bologna - Department of Management ( email )

Via Capo di Lucca, 24
http://stefanomengoli.weebly.com/
Bologna, Bologna 40132
Italy

Federica Pazzaglia

University College Dublin ( email )

Belfield, Dublin 4 4
Ireland

Sandro Sandri

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

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