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This paper addresses the conflicting evidence on the role of family ownership in accruals quality. We argue that prior evidence has failed to control for innate characteristics that reflect the firm’s business and operating environment (Francis et al., 2005). To address this issue, we decompose accruals quality into two components, innate and discretionary accruals. This allows us to investigate the relationship between family ownership and discretionary accruals in specific. We show that family ownership is associated with higher quality of discretionary accruals. Furthermore, we find that the association is marginally stronger when a family member servers as the chief executive officer. Our results consider other governance mechanisms that have been shown to impact discretionary accruals in prior studies.
This document has been peer reviewed.