Founder domination, industry environment, and family firms' earnings management

Abstract

PurposeBased on socioemotional wealth theory, the authors explore the impact of founder domination (with the founder as the chairman or CEO) on the earnings management activities of family firms and examine the moderating effect of the industry environment on the above relationship.Design/methodology/approachBased on the multivariate regression model, the authors test the theoretical view on the empirical data of Chinese family-owned listed companies.FindingsThe authors propose and find that under founder domination, family firms are unlikely to engage in earnings management activities. Furthermore, the authors find that industry growth enhances the above relationship, while industry competition weakens it.Originality/valueFirst, by clarifying the importance and heterogeneous impacts of the founder serving as chairman or CEO on China's family firms' earnings management, this research contributes to a fuller understanding of the impact of founder domination on the business activities of firms, especially family firms. Second, the authors contribute to the literature that examines the antecedents of earnings management, particularly in family firms. Third, the authors contribute to the study of the boundary conditions of the “founder domination-firms’ business activities” framework.