Family Ownership and Earnings Quality: Evidence from Different Institutional Environments
40 Pages Posted: 15 Mar 2017 Last revised: 12 Jan 2018
Date Written: March 13, 2017
We examine whether a country’s level of institutional development moderates the relationship between family ownership of firms and their financial reporting quality. Using a sample of family and non-family firms in 12 European countries, we find evidence of a moderating effect of institutional development. Specifically, a more developed institutional environment has a less beneficial impact on the earnings quality of family firms than that of non-family firms. Thus, family ownership and a country’s institutional environments have a substitute effect on the quality of firms’ financial reporting. Our study contributes to the literature by showing that well-developed formal institutions have a more beneficial effect on the earnings quality of non-family firms than that of family firms. We also show that informal institutions such as families have a particularly positive influence on firm behaviour in countries where formal institutions are lacking.
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