The first author is at the Department of Accounting Information, National Taichung University of Science and Technology, Taichung, Taiwan. The second and third authors are both at the Department of Accounting, National Chengchi University, Taipei, Taiwan. The authors are grateful for constructive comments from Martin Walker (Editor), an anonymous referee, and seminar participants at National Chengchi University, National Taichung University of Technology and Science, and the 2009 American Accounting Association Annual meeting. We gratefully acknowledge the financial support provided by the National Science Council of Taiwan (Paper received August, 2010; revised version accepted July, 2013).
Exploring the Causes of Accounting Restatements by Family Firms
Article first published online: 16 SEP 2013
© 2013 John Wiley & Sons Ltd
Journal of Business Finance & Accounting
Volume 40, Issue 9-10, pages 1068–1094, November/December 2013
How to Cite
Sue, S.-H., Chin, C.-L. and Chan, A. L.-C. (2013), Exploring the Causes of Accounting Restatements by Family Firms. Journal of Business Finance & Accounting, 40: 1068–1094. doi: 10.1111/jbfa.12040
- Issue published online: 17 DEC 2013
- Article first published online: 16 SEP 2013
- National Science Council of Taiwan
- accounting restatement;
- agency problems;
- family firms;
Prior research shows that family firms have better earnings quality than non-family firms in common-law countries and highly developed markets. In contrast, we do not find a significant difference in the financial reporting quality between family and non-family firms in the context of a civil-law system and less developed market. We show that the financial reporting quality of family firms is conditioned on: (1) the divergence between the controlling shareholders’ voting rights and their cash flow rights, and (2) the firm's reputation for integrity, while these two conditions do not explain the restatement likelihood for non-family firms. Moreover, when accounting irregularities are detected in the case of family firms, they are associated with more serious accounting restatements. Together, these results imply that the severity of the conflict between ultimate and minority shareholders, and a lack of integrity, explain the propensity for making financial restatements among family firms in a regime characterized as having weak investor protection and concentrated ownership structures.