Accounting Research in Family Firms: Theoretical and Empirical Challenges

Abstract

Family firms play a significant role in the global economy. Consistently, over the last two decades academia has turned its attention to the family dimension as a determinant of business phenomena, and this interest has increased over time. While family business research has reached an age of ‘adolescence’ as a field of study, accounting research to date seems to have been rather slow to pick up on the distinctive characteristics of family firms, and their implications for accounting and reporting practices. In an attempt to accelerate and support research in the field, in this article we highlight theoretical and empirical challenges that accounting scholars need to consider when addressing issues related to accounting and reporting in family firms. These challenges include the selection and potential mixing of appropriate theoretical frameworks, and complications in defining operationally what family firms are. We also provide a ‘state of the art’ of studies in financial accounting, management accounting and auditing, identifying which issues in relation to family firms have been addressed in the research, and which theories, research methods and types of data have been used in these studies. We conclude by providing directions for future research that can advance our understanding of accounting and reporting in family firms.

View correction statement:

Correction to European Accounting Review 23(3) (2014), Special Issue on ‘Accounting and Reporting in Family Firms’

Acknowledgements

The authors wish to thank the Editor Salvador Carmona, an anonymous referee and the participants at the 2012 European Accounting Review Conference for useful comments and suggestions.

Notes

¹For some statistics about research and publications on family firms, see Siebels and Knyphausen-Aufseß (2011) and Benavides-Velasco et al. (2013).

²Berrone et al. (2012, pp. 262–264) define the five components of the SEW theory as follows. Family control and influence refers to the control and influence of family members over strategic decisions. Identification with the firm refers to the close identification of the family with the business. Social ties refer to family firms' social relationships. Emotional attachment refers to the role of emotions in the family business context. Dynastic succession refers to the intention of handing the business down to future generations.

³For example, ownership has been operationalised in alternative ways, such as the family owns the majority of voting shares (>50%), the family owns at least 10–25% (for public companies), or the family is the largest owner. Similarly strategic/managerial control has been operationalised using ‘soft’ criteria (e.g. family relations affect the assignment of the management, a significant proportion of the company's senior management belongs to the family, the most important decisions are made by the family, or at least two generations have had control over the enterprise) or ‘hard’ criteria (e.g. the CEO belongs to the family; one, or at least one family member is involved in the operating management; at least two or three board members stem from the family, or the majority of the management team comes from the family).

⁴Because of this reason, unless explicitly linked to family ownership, studies on ownership concentration and/or insider ownership were disregarded in our search of the literature. We take a broad perspective on what constitutes accounting practices. For instance, while not explicitly referring to management accounting or control, a study on strategic planning (e.g. Blumentritt, 2006) is considered a management accounting paper. We disregard accounting papers that are located empirically in a family-firm setting, but do not explicitly examine the implications of that setting (e.g. Anderson, Dekker, & Sedatole, 2010). We also omit from our review the limited literature on tax behaviour in family firms (e.g. Chen, Chen, Cheng, & Shevlin, 2010).

⁵Our selection criteria result in a more limited set of publications than reported in Salvato and Moores (2010). Their review paper also includes studies on topics such as ownership concentration, inside ownership, privately held firms, in which there is no clear analysis or evidence of family issues.

⁶We exclude from the selection Hutton (2007), which provides a discussion of Ali et al. (2007) and does not constitute a study in itself.

⁷Our review also indicates that a few papers do not refer explicitly to any theoretical framework.

⁸In some archival studies, tracking is eased and threats to accuracy appear low, such as in the study of Weiss (2014) among Israeli firms that are legally required to report family relations among all stakeholders, directors, and managers as an integral part of the annual financial statements, and Hope et al. (2012), who obtain access to non-publicly available data on family relations through the Norwegian National Register Office.