Family ownership, family identity of CEO, and accounting conservatism: evidence from Taiwan

ABSTRACT

This study investigates how variations in family ownership configurations and family identity of the CEO affect family firms’ accounting conservatism in the East Asian economy, Taiwan. To address this objective, this study extends the traditional agency perspective and employs a socioemotional wealth framework. Findings document that family ownership is positively associated with family firms’ accounting conservatism, whereas the degree of disparity between family cash flow and voting rights is negatively related to accounting conservatism. Additionally, family firms with a founder CEO are more likely to report conservatively than those with a descendent CEO. Our study expands the growing literature on how family owners’ corporate governance features affect financial reporting decisions.

KEYWORDS:

• Family firms
• family ownership
• family CEO
• accounting conservatism
• socioemotional wealth

Acknowledgement

The authors would like to thank Professor Sumit Lodhia (the editor), Professor Jason Xiao (the associate editor), and the two anonymous reviewers for their very constructive feedback on the paper.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 Companies in the financial and utility sectors were excluded on the grounds that they have a number of significant differences from other businesses, in terms of industrial characteristics and accounting systems, such as income-measuring accounting rules.

2 The family owners’ cash flow rights and voting rights are obtained from the Taiwan Economic Journal (TEJ) database. The cash flow right refers to the proportion of cash flow rights that the ultimate family owners possess. The voting right refers to the proportion of voting rights that the ultimate family owners of the firm possess. The database defines the ultimate ownership based on the method by La Porta et al. (1999).

3 The supplemental online material provides the table for the Pearson correlations.

4 We do not adopt AGGREGATE to access the economic significance in relation to the effects of F_OWN, F_DIV, FF_DUM, and FD_DUM, because it is a composite accounting conservatism measure developed based on the firm’s rank for each of the three individual measures, NON_ACC, C_SCORE_KW, and C_SCORE_PZ.

5 The Most Admired Company Award is granted to the most reputable companies in Taiwan. These companies are chosen based on the yearly survey made by the CommonWealth Magazine since 1994.

6 The supplemental online material provides a more detailed discussion of the procedure of our 2SLS analysis and the table for the results.

7 The supplemental online material provides the table of the results based on the propensity score matching approach.