Organizational Structure and Earnings Quality of Private and Public Firms

Forthcoming, Review of Accounting Studies. doi/article/10.1007/s11142-019-09495-y

Posted: 30 Jun 2019

See all articles by Massimiliano Bonacchi

Massimiliano Bonacchi

Free University of Bolzano - Faculty of Economics and Management; Stern School of Business, New York University

Antonio Marra

Bocconi University - Department of Accounting

Paul Zarowin

New York University (NYU) - Department of Accounting

Multiple version iconThere are 2 versions of this paper

Date Written: June 28, 2019

Abstract

We examine how heterogeneity in organizational structure affects private firm earnings quality in the European Union. Organizational structure refers to whether the firm is organized as a single legal entity (standalone) or as a business group. Private firms can be organized either way, while public firms are de facto groups. Even though private firms are not affected by market forces, we show that private business groups face greater stakeholder pressure for earnings quality than do standalone firms, while standalone firms have stronger tax minimization incentives. Due to these differences in nonmarket forces, private business groups have higher earnings quality than standalone firms. This heterogeneity among private firms is an important unexplored factor in the study of private firms, affecting the comparison between public and private firm earnings quality. We find that overall, public firms have higher earnings quality than private firms but this relation reverses when we control for nonmarket forces by examining business groups only.

Keywords: Private firms, Business groups, Standalone, Stakeholder incentives, Earnings quality, Non-market forces

JEL Classification: D22, G15, G32, K22, M41

Suggested Citation

Bonacchi, Massimiliano and Marra, Antonio and Zarowin, Paul, Organizational Structure and Earnings Quality of Private and Public Firms (June 28, 2019). Forthcoming, Review of Accounting Studies. doi/article/10.1007/s11142-019-09495-y , Available at SSRN: https://ssrn.com/abstract=3411891

Massimiliano Bonacchi (Contact Author)

Free University of Bolzano - Faculty of Economics and Management ( email )

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HOME PAGE: http://www.unibz.it/en/economics/people/StaffDetails.html?personid=35968&hstf=35968

Stern School of Business, New York University ( email )

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HOME PAGE: http://www.stern.nyu.edu/faculty/bio/massimiliano-bonacchi

Antonio Marra

Bocconi University - Department of Accounting ( email )

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Milan, 20136
Italy

Paul Zarowin

New York University (NYU) - Department of Accounting ( email )

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New York, NY 10012-1118
United States
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212-995-4004 (Fax)

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