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Family firms, institutional development and earnings quality: does family status complement or substitute for weak institutions?

Stefano Mengoli, Federica Pazzaglia () and Sandro Sandri ()
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Federica Pazzaglia: University College Dublin
Sandro Sandri: University of Bologna

Journal of Management & Governance, 2020, vol. 24, issue 1, No 3, 63-90

Abstract: Abstract This study combines insights from the socioemotional wealth perspective and institutional and resource-based theories to examine the earning quality of family and nonfamily firms operating in countries characterized by different levels of institutional development. Results based on a cross-sectional sample of firms from 12 European countries show that family status and a country’s level of institutional development are positively related to earnings quality. They also show that institutional development moderates the relationship between family status and earnings quality. Comparing insider-oriented countries that are characterized by lower regulatory and financial development with outsider-oriented countries that are characterized by higher regulatory and financial development, we found that family firms have a higher earnings quality in insider-oriented countries than in outsider-oriented ones. Thus, our study finds support for a substitution effect, whereby family status compensates for the limited capacity of less developed regulations and markets to induce virtuous financial reporting behaviors.

Keywords: Earnings quality; Family firms; Governance; Institutional development (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s10997-019-09466-0

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