Family Controlling Ownership, Corporate Governance and Earning Quality

• In Event: Reception with ELS and Research Interaction Forum Posters
  In Poster Session: Research Interaction Forum

Abstract

This research aims to investigate the effect of family controlling ownership to earning quality both accounting and market earning quality. This research also investigates the moderating role of corporate governance to earning quality. We argue that companies with family as controlling shareholder may have higher agency conflict between the controlling shareholder and non-controlling shareholders. The implementation of corporate governance is required to protect the rights of all shareholders including non-controlling shareholders.

We find that the entrenchment effect positively affect earning quality. We also find evidence that the alignment effect has a negative impact on earning quality. Family ownership strengthened the entrenchment effect on accounting earning quality but not on market earning quality. Strong and solid corporate governance mechanism could effectively reduce the negative impacts of entrenchment effect on accounting earning quality .

Keywords: ultimate controlling ownership, entrenchment effect, alignment effect, related party transactions, earnings management

Author

• Vera Diyanty, Universitas Indonesia