Title: Real earnings management in family firms: evidence from Chinese listed firms

Authors: Xi Tian; Tao Yang; T. Robert Yu

Addresses: College of Economics and Management, Nanjing Agricultural University, Nanjing, Jiangsu, 210095, China ' School of Continuing Studies, University of Wisconsin Madison, Madison, WI 53590, USA ' Department of Accounting, University of Wisconsin Whitewater, Whitewater, WI 53190, USA

Abstract: Using a large sample of Chinese family firms and nonfamily firms, we examine whether family ownership is associated with higher or lower levels of real earnings management (REM). On the basis of the agency and stewardship theories, we develop two competing hypotheses. Our findings are consistent with the prediction of the stewardship theory that family firms engage in lower levels of real activities manipulation relative to nonfamily firms. Specifically, family businesses are less likely to accelerate sales, over-produce, cut discretionary expenditures, or engage in more than one real activities manipulation. In our analyses, we control for a number of firm properties and fixed effects. Further analysis suggests that the negative association between family ownership and real activities manipulation is more prominent for young family firms than for mature family firms. Our results are robust to different measures of family firms, alternative measures of REM, and potential endogeneity.

Keywords: real earnings management; REM; agency theory; stewardship theory; family firm; family business; Chinese listed firms.

DOI: 10.1504/IJRM.2018.091814

International Journal of Revenue Management, 2018 Vol.10 No.2, pp.77 - 106

Received: 02 Jun 2016
Accepted: 11 May 2017
Published online: 18 May 2018 *

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