A Study of Association between Family-Controlled Firms and Earnings Management

• Main Authors: Shu-Lin Huang, 黃淑琳
• Other Authors: Hung-Shu Fan
• Format: Others
• Language: zh-TW
• Published: 2005
• Online Access: http://ndltd.ncl.edu.tw/handle/38395450088375681506

碩士 === 輔仁大學 === 會計學系碩士班 === 94 === This study try to find out whether family-controlled firms versus not-family-controlled firms in Taiwan, listed either on TSE or GTSM, will have different earnings management behavior. In the situation that the family shareholder controls the company effectively, the character of agency problem will be changed from between the shareholders and managements to between majority shareholders to minority shareholders. If this is the case, those decisions made by the majority shareholders might impair minority shareholders. (Shleifer & Vishny, 1997) In Taiwan, it is very common that the listed companies are controlled by some family, the so-called family-controlled firms. The shareholders of those family-controlled firms would fail to monitor the operating of the company effectively. It is obviously that those companies will suffer from an issue of weak supervision. So, this study predicts that comparing not-family-controlled firms, family-controlled firms engage more earnings management actions. The model developed by can work accurately and precisely. This study uses Jones and Modify-Jones model to estimate discretionary accruals to proxy earnings management behaviors of some sample firm. The empirical findings of this study are that comparing not-family-controlled firms, family-controlled firms inclines to do more earnings management behaviors. Furthermore, this study broke down discretionary accruals into short-term discretionary accruals and long-term discretionary accruals to observe the impact of control type on the short-term\long-term earnings management behaviors. Based on Jones model, there is no significant correlation between family-controlled firms and short-term discretionary accruals, but family-controlled firms have more long-term discretionary accruals. This findings shows family-controlled firms is prone to using long-term discretionary accruals as a tool of earnings management. In contrast, by using Modify-Jones model, this study finds that family-controlled firms have less short-term discretionary accruals and more long-term accruals, comparing to not-family-controlled firms. This study concludes that in order to meet their target extent of earnings management, family-controlled firms intend to use short-term discretionary accruals to mitigate the profound effect from long-term discretionary accruals.