Earnings Management in Private Family Versus Non-Family Firms: The Moderating Effect of Family Business Generation

Abstract

The study addresses the signs of earnings management in unlisted companies, comparing the situation in family firms and non-family firms. We adopt arguments from agency theory, and stewardship theory, which are supplemented with the assumptions of socio-emotional wealth literature, to justify our research model. The sample is composed of 263 audited Spanish companies with a turnover of more than 200 million euros, which were analyzed in the period from 2011 to 2015. Results indicate that family firms are less prone to the practices of earnings management that the non-family firms, although the association between the family firm status and the earnings management is moderated by the firm generation. This work contributes to the literature on the quality of financial information in both family firms and unlisted companies, exploring new areas of research.

Keywords: Family vs non-family business, earnings management, agency theory, stewardship theory, socioemotional wealth.

JEL Classification: G