Organizational structure and earnings quality of private and public firms

Massimiliano Bonacchi, Antonio Marra and Paul Zarowin ()
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Massimiliano Bonacchi: University of Bolzano
Antonio Marra: Bocconi University
Paul Zarowin: New York University

Review of Accounting Studies, 2019, vol. 24, issue 3, No 9, 1066-1113

Abstract: Abstract We examine how heterogeneity in organizational structure affects private firm earnings quality in the European Union. Organizational structure refers to whether the firm is organized as a single legal entity (standalone) or as a business group. Private firms can be organized either way, while public firms are de facto groups. Even though private firms are not affected by market forces, we show that private business groups face greater stakeholder pressure for earnings quality than do standalone firms, while standalone firms have stronger tax minimization incentives. Due to these differences in nonmarket forces, private business groups have higher earnings quality than standalone firms. This heterogeneity among private firms is an important unexplored factor in the study of private firms, affecting the comparison between public and private firm earnings quality. We find that overall, public firms have higher earnings quality than private firms but this relation reverses when we control for nonmarket forces by examining business groups only.

Keywords: Private firms; Business groups; Standalone; Stakeholder incentives; Earnings quality; Non-market forces (search for similar items in EconPapers)
JEL-codes: D22 G15 G32 K22 M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (9)

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DOI: 10.1007/s11142-019-09495-y

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