Family Firms and the Market’s Reaction to Accruals Quality

• In Event: Earnings Quality, Earnings Management, and Accruals

Abstract

Prior research shows that family firms have better financial reporting quality compared to non-family firms. However, prior research also shows that the market discounts the value of family firm choices. In this paper, we show that even though family firms, on average have better realized reporting quality as measured by accruals based measures, the market’s reaction to poor earnings quality is much greater for family firms. Our findings will be important to family firm managers as they grapple with how best to communicate with the market participants.

Authors

• Guy Dinesh Fernando, SUNY - Albany

• Richard A Schneible, University of Albany

• SangHyun Suh, University of Massachusetts-Lowell