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Influence of family control in the practice of earnings management

Influence of family control in the practice of earnings management Purpose– The purpose of this paper is to identify if the open Brazilian companies that have family control manage their accounting results in a negative way, and if this influence is in a positive sense of pushing the results down, that is, worsening their present profits due to future results. Design/methodology/approach– The empirical investigation is developed using as a sample 123 Brazilian companies listed on BM&FBovespa, totaling 1.353 observations for a period of 11 years (2000-2010). Data analysis is conducted by means of regression with panel data, method of ordinary least squares (OLS), and random effects. Findings– First, it was found that family-type companies show lower profits compared to profits earned by non-family companies. Nevertheless, it was observed that family businesses have negative discretionary accruals higher than those submitted by non-family firms, and that family control has a positive influence on this type of earnings management. Research limitations/implications– The article provides an extension to earlier work focused on the relationship between family ownership and earnings management results. Practical implications– The paper provides a more critical look at family property, especially as regards the quality of their accounting information. Originality/value– The study not only investigates whether family control is positively related to discretionary accruals of Brazilian companies; it also checks the influence of family property on the production of negative accruals – “take a bath”. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Management Research: The Journal of the Iberoamerican Academy of Management Emerald Publishing

Influence of family control in the practice of earnings management

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1536-5433
DOI
10.1108/1536-541311318080
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Abstract

Purpose– The purpose of this paper is to identify if the open Brazilian companies that have family control manage their accounting results in a negative way, and if this influence is in a positive sense of pushing the results down, that is, worsening their present profits due to future results. Design/methodology/approach– The empirical investigation is developed using as a sample 123 Brazilian companies listed on BM&FBovespa, totaling 1.353 observations for a period of 11 years (2000-2010). Data analysis is conducted by means of regression with panel data, method of ordinary least squares (OLS), and random effects. Findings– First, it was found that family-type companies show lower profits compared to profits earned by non-family companies. Nevertheless, it was observed that family businesses have negative discretionary accruals higher than those submitted by non-family firms, and that family control has a positive influence on this type of earnings management. Research limitations/implications– The article provides an extension to earlier work focused on the relationship between family ownership and earnings management results. Practical implications– The paper provides a more critical look at family property, especially as regards the quality of their accounting information. Originality/value– The study not only investigates whether family control is positively related to discretionary accruals of Brazilian companies; it also checks the influence of family property on the production of negative accruals – “take a bath”.

Journal

Management Research: The Journal of the Iberoamerican Academy of Management – Emerald Publishing

Published: Jun 3, 2013

Keywords: Brazil; Family firms; Earnings; Assets; Expenses; Profits; Earnings management; Family control; Family business; Discretionary accruals; Take a bath; Brazilian listed companies

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