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- Title
Ownership succession intentions affecting earnings management in private family firms.
- Authors
Umans, Ine; Corten, Maarten
- Abstract
Drawing on agency and socioemotional wealth theory, this study elucidates that ownership succession intentions affect earnings management in private family firms. Based on a combination of questionnaire data and archival data of 331 Belgian private family firms, results indicate that family firms intending to transfer ownership to non-family members engage more in earnings management than those planning to transfer ownership to family members. Our findings also show differences in earnings management within each subset of ownership succession, thereby highlighting family firm heterogeneity. Family owners intending to transfer ownership to their children engage less in upward earnings management than those planning to transfer ownership to other family members. Family owners intending to transfer ownership to employees engage more in downward earnings management than those intending to transfer ownership to outsiders. This study contributes to both theory and practice by considering ownership succession intentions as a driver of earnings management. Plain English Summary: Window dressing accounting figures of family firms depends on the one standing in front of the window. Examining 331 Belgian private family firms, this study indicates that family firms intending to transfer ownership to non-family members inflate their accounting figures, probably to negotiate a better selling price. While less so-called earnings management is observed when envisioning transferring ownership to family members, it still occurs when the family members are not the children of the current owners. Finally, this study illustrates that family firms intending to transfer ownership to employees might engage in downward earnings management, potentially to provide an opportunity for the employees who the family started to consider as kin too to buy the firm. Potential buyers, current investors, auditors, and accountants should consider these findings when interpreting the financial statements of family firms.
- Subjects
EARNINGS management; FAMILY-owned business enterprises; EMPLOYEE ownership; SHOW windows; EMPLOYEE transfers; ASSET-liability management; WEALTH
- Publication
Small Business Economics, 2023, Vol 61, Issue 2, p827
- ISSN
0921-898X
- Publication type
Article
- DOI
10.1007/s11187-022-00696-5