University of Nebraska–Lincoln. This paper is partly based on my dissertation completed at the University of Missouri–Columbia. I thank my dissertation committee co-chairs, Jere Francis and Inder Khurana, for their generous and consistent guidance and encouragement in completing this paper. I also thank other committee members—Raynolde Pereira, Kenneth Shaw, and John Howe—for their helpful comments. This paper has benefited from the comments of workshop participants at the University of Missouri–Columbia, the University of Nebraska–Lincoln, Georgia State University, and the University of Florida. Special thanks to Arthur Allen, Ken Reichelt, Sugata Roychowdhury (the discussant at the 2004 AAA annual meeting), and Ray Ball (the editor) for their valuable suggestions. Finally, I greatly appreciate the comments and suggestions from an anonymous reviewer. All errors are my own.
Founding Family Ownership and Earnings Quality
Article first published online: 19 APR 2006
Journal of Accounting Research
Volume 44, Issue 3, pages 619–656, June 2006
How to Cite
WANG, D. (2006), Founding Family Ownership and Earnings Quality. Journal of Accounting Research, 44: 619–656. doi: 10.1111/j.1475-679X.2006.00213.x
- Issue published online: 19 APR 2006
- Article first published online: 19 APR 2006
- Received 1 January 2005; accepted 18 November 2005
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.