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Web End = J Bus Ethics (2016) 133:453469 DOI 10.1007/s10551-014-2403-5
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Web End = Family Control, Socioemotional Wealth and Earnings Management in Publicly Traded Firms
Geoffrey Martin Joanna Tochman Campbell
Luis Gomez-Mejia
Received: 23 September 2013 / Accepted: 14 September 2014 / Published online: 26 September 2014 Springer Science+Business Media Dordrecht 2014
Abstract We examine the unique nature of agency problems within publicly traded family rms by investigating the earnings management decision of dominant family owners relative to non-family. To do so, we draw upon literature demonstrating that family owners are loss averse with respect to the familys socioemotional wealth, or the affective endowment derived from rm ownership and control. Our theory and ndings suggest that potential reputational consequences of earnings management lead family principals to engage in less of this practice relative to non-family rms, and that founder family rms are less likely than non-founder family rms to use earnings management. Moreover, the family-rm effect varies with the rm size, the degree of CEO entrenchment, and the rms stock structure. We provide important insights regarding differences between family and non-family principals in the use of unethical accounting practices, thereby extending agency theory and advancing an under-developed research area.
Keywords Accounting ethics Earnings management
Family rm Socioemotional wealth Agency
Governance
Earnings management occurs when managers use judgment in nancial reporting and in structuring transactions to alter nancial reports to either mislead some stake-holders about the underlying economic performance of the company or to inuence contractual outcomes that depend on reported accounting numbers (Healy and Wahlen 1999, p. 368). Philosophical references to ethical behavior are commonly associated with what is considered to be fair, right, and just (Hosmer 1995, p. 394; Steiner 1972). It is clear that misleading uninformed stakeholders via aggressive use of earnings management falls short of the right and just standard. That is, higher levels of earnings management are likely to be considered unethical (Elias 2002; Kaplan 2001), or at the very least, questionable from a moral hazard perspective. In fact, earnings management is a perfect example of an...