Founder Succession and Accounting Properties

Joseph P.H. Fan, T.J. Wong and Tianyu Zhang

No 2009-06, CEI Working Paper Series from Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University

Abstract: Using a sample of 231 entrepreneurial firm successions in Hong Kong, Singapore, and Taiwan, we find that firms' unsigned discretionary accruals decrease while timely loss recognition increases subsequent to successions, suggesting a shift in accounting toward a less insider-based system. We argue that the change in accounting properties is due to the loss of specialized assets in the succession process, such as the entrepreneur's reputation and political/social networks, inducing the firm to adapt to market-based rather than relationship-based contracting. Moreover, we find that the extent of the shift in accounting is larger in founder successions than in subsequent (non-founder) successions, as the dissipation of specialized assets is greatest in founder successions.

Keywords: Succession; founder; corporate governance; accounting properties (search for similar items in EconPapers)
JEL-codes: G32 L14 M41 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2009-11
New Economics Papers: this item is included in nep-acc and nep-sea
Note: April 2009
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Persistent link: https://EconPapers.repec.org/RePEc:hit:hitcei:2009-06

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