Accrual-Based and Real Activities Based Earnings Management Behavior of Family Firms in Japan

Tai-Yuan Chen, Zhaoyang Gu, Keiichi Kubota and Hitoshi Takehara
Additional contact information
Tai-Yuan Chen: Department of Accounting, HKUST Business School, Hong Kong University of Science and Technology, CHINA
Zhaoyang Gu: School of Accountancy, CUHK Business School, Chinese University Of Hong Kong, CHINA
Keiichi Kubota: Graduate School of Strategic Management, Chuo University, JAPAN
Hitoshi Takehara: Graduate School of Finance, Accounting and Law, Waseda University, JAPAN

The Japanese Accounting Review, 2015, vol. 5, 21-47

Abstract: We have explored the extent of accrual-based and real activities-based earnings management using data from family and non-family firms in Japan. Family firms are expected to have lower agency costs because family shareholders and management are more congruent in their pursuit of mutual firm goals and seek lower levels of earnings management. However, this collusion may lead to entrenchment and higher levels of earnings management, which becomes opaque to outside shareholders. A founding family is concerned with the reputation of their firm for sustained socioemotional wealth and family firms may conduct cosmetic earnings management to conceal bad news. We empirically assess the levels of earnings management and investigate whether the level will be lower or higher for family or non-family firms, and identify which method is more costly. The level of accruals and cost may vary among the family firm types; that is, whether or not shareholdings are large or the CEO is from the founding family. We find that the level of both accrual-based and real activity measures is lower for family firms. With cross-section regressions, we find that family shareholding increase the level of abnormal accruals management, whereas the family CEO decreases the level of abnormal accruals, but in both cases the amounts were not significant. We also find that family-related variables decrease the levels of real-activities earnings management. When we introduce economic measures related to the costs of earnings management, we find that Japanese family firms utilize accrual-based earnings management more often than real activities-based earnings management.

Keywords: Earnings Quality; Founding Family; CEO; Abnormal Accruals; Overproduction (search for similar items in EconPapers)
JEL-codes: G32 M14 M41 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.rieb.kobe-u.ac.jp/tjar/article/vol5/pd ... ota_and_Takehara.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kob:tjrevi:dec2015:v:5:p:21-47

Access Statistics for this article

The Japanese Accounting Review is currently edited by Hidetoshi Yamaji

More articles in The Japanese Accounting Review from Research Institute for Economics & Business Administration, Kobe University Contact information at EDIRC.
Bibliographic data for series maintained by TJAR Editorial Office ().