Family ownership and the value-relevance of earnings and book value
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This study investigates the relation between family ownership and the value-relevance of two primary accounting measures, earnings and book value. We provide theories of the effect of family ownership on the value-relevance of earnings and book value. We contend that current accounting technology does not fully recognise the family firm factors in the earnings or book value of the firm. We find that the value-relevance of earnings and is higher for family firms. We attribute this to the long-term orientation and the higher quality earnings of these firms. In contrast, the value-relevance of book value is lower. We believe this is due to the fact that family firms possess more social and human capital than non-family firms. As these intangible assets are not recognised in the balance sheet, the book value figure becomes of less relevance for family firms.
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