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Founding Family Ownership and Earnings Quality

Dechun Wang
Journal of Accounting Research
Vol. 44, No. 3 (Jun., 2006), pp. 619-656
Stable URL: http://www.jstor.org/stable/3542336
Page Count: 38
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Since scans are not currently available to screen readers, please contact JSTOR User Support for access. We'll provide a PDF copy for your screen reader.
Founding Family Ownership and Earnings Quality
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Abstract

This study investigates the relation between founding family ownership and earnings quality using data from the Standard & Poor's 500 companies. Existing literature has documented that financial reporting is of higher quality when firms have stronger corporate governance mechanisms and when there is greater demand for quality financial reporting. I provide two competing theories of the effect of founding family ownership on the demand and supply of earnings quality: the entrenchment effect and the alignment effect. The empirical results show that, on average, founding family ownership is associated with higher earnings quality. In particular, I find consistent evidence that founding family ownership is associated with lower abnormal accruals, greater earnings informativeness, and less persistence of transitory loss components in earnings. In addition, the results suggest a nonlinear relation between family ownership and earnings quality.

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