Building on agency theory, this article investigates whether family firms’ accounting behavior regarding long-lived asset write-offs differs from that of nonfamily firms. We provide evidence that nonfamily firms use write-offs for earnings management purposes, while family firms report write-offs coherent with the firm performance. Family firms experience dwindling sales and lower profitability in the years following the write-offs, consistently with an effective decline in their assets value. The findings are consistent with reduced owner-manager agency conflicts in family firms. We find no indication of family entrenchment, which is consistent with family owners being concerned with the reputational damage associated with a loss of a firm’s asset value.
AbuGhazalehN.Al-HaresO.RobertsC. (2011). Accounting discretion in goodwill impairments: UK evidence. Journal of International Financial Management & Accounting, 22, 165-204.
2.
AlciatoreM.DeeC. C.EastonP.SpearN. (1998). Asset write-downs: A decade of research. Journal of Accounting Literature, 17, 1-39.
3.
AliA.ChenT. Y.RadhakrishnanS. (2007). Corporate disclosures by family firms. Journal of Accounting and Economics, 44, 238-286.
4.
AmoreM. D.GarofaloO.MinichilliA. (2014). Gender interactions within the family firm. Management Science, 60, 1083-1097.
5.
AndersonR. C.MansiS. A.ReebD. M. (2003). Founding family ownership and the agency cost of debt. Journal of Financial Economics, 68, 263-285.
6.
AndersonR. C.ReebD. M. (2003). Founding-family ownership and firm performance: Evidence from the S&P 500. Journal of Finance, 58, 1301-1328.
7.
AndresC. (2008). Large shareholders and firm performance—An empirical examination of founding-family ownership. Journal of Corporate Finance, 14, 431-445.
8.
ArregleJ.-L.HittM. A.SirmonD. G.VeryP. (2007). The development of organizational social capital: Attributes of family firms. Journal of Management Studies, 44, 73-95.
9.
BallR.ShivakumarL. (2005). Earnings quality in UK private firms: Comparative loss recognition timeliness. Journal of Accounting and Economics, 39, 83-128.
10.
BeattyA.WeberJ. (2006). Accounting discretion in fair value estimates: An examination of SFAS 142 goodwill impairments. Journal of Accounting Research, 44, 257-288.
11.
BinzC.HairJ. F.PieperT. M.BaldaufA. (2013). Exploring the effect of distinct family firm reputation on consumers’ preferences. Journal of Family Business Strategy, 4, 3-11.
12.
BrattenB.GaynorL. M.McDanielL.MontagueN. R.SierraG. E. (2013). The audit of fair values and other estimates: The effects of underlying environmental, task, and auditor-specific factors. Auditing: A Journal of Practice & Theory, 32(Suppl. 1), 7-44.
13.
BrunelloG.GrazianoC.ParigiB. M. (2003). CEO turnover in insider-dominated boards: The Italian case. Journal of Banking and Finance, 27, 1027.
14.
CarcelloJ. V.HermansonD. R.NealT. L.RileyR. A. (2002). Board characteristics and audit fees. Contemporary Accounting Research, 19, 365-384.
15.
CascinoS.PuglieseA.MussolinoD.SansoneC. (2010). The influence of family ownership on the quality of accounting information. Family Business Review, 23, 246-265.
16.
ChaoC.-L.HorngS.-M. (2013). Asset write-offs discretion and accruals management in Taiwan: The role of corporate governance. Review of Quantitative Finance and Accounting, 40, 41-74.
17.
ChenS.ChenX.ChengQ. (2008). Do family firms provide more or less voluntary disclosure?Journal of Accounting Research, 46, 499-536.
18.
ChenS.ChenX.ChengQ.ShevlinT. (2010). Are family firms more tax aggressive than non-family firms?Journal of Financial Economics, 45, 41-61.
19.
CorbettaG.SalvatoC. (2004). Self-serving or self-actualizing? Models of man and agency costs in different types of family firms: A commentary on “comparing the agency costs of family and non-family firms: Conceptual issues and exploratory evidence”. Entrepreneurship Theory and Practice, 28, 355-362.
FanJ. P.WongT. J. (2002). Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33, 401-425.
22.
FirthM.FungP. M. Y.RuiO. M. (2007). Ownership, two-tier board structure, and the informativeness of earnings—evidence from China. Journal of Accounting and Public Policy, 26, 463-496.
23.
FrancisJ.HannaJ.VincentL. (1996). Causes and effects of discretionary asset write-offs. Journal of Accounting Research, 34(Suppl.), 117-134.
24.
GodfreyJ. M.KohP. (2009). Goodwill impairment as a reflection of investment opportunities. Accounting and Finance, 49, 117-140.
25.
Gomez-MejiaL. R.CruzC.BerroneP.De CastroJ. (2011). The bind that ties: Socioemotional wealth preservation in family firms. Academy of Management Annals, 5, 653-707.
26.
GormleyT. A.MatsaD. A. (2014). Common errors: How to (and not to) control for unobserved heterogeneity. Review of Financial Studies, 27, 617-661.
GulerL. (2007). Goodwill impairment charges under SFAS no. 142: Role of executives’ incentives and corporate governance (Working paper). College Station: Texas A&M University.
International Accounting Standards Board. (2010). International Accounting Standard 36 Impairment of Assets. International Accounting Standards. Retrieved from http://www.iasplus.com/en/standards/ias/ias36
31.
JensenM. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. Journal of Finance, 48, 831-880.
32.
JirapornP.DaDaltJ. (2009). Does founding family control affect earnings management?Applied Economics Letters, 16, 113-119.
33.
JonesJ. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29, 193-228.
34.
JungK.KwonS. Y. (2002). Ownership structure and earnings informativeness. Evidence from Korea. International Journal of Accounting, 37, 301-325.
35.
Le Breton-MillerL.MillerD. (2009). Agency vs. stewardship in public family firms: A social embeddedness reconciliation. Entrepreneurship Theory and Practice, 33, 1169-1191.
36.
LiZ.ShroffP. K.VenkataramanR.ZhangI. X. (2011). Causes and consequences of goodwill impairment losses. Review of Accounting Studies, 16, 745-778.
37.
MillerD.Le Breton-MillerI. (2006) Family governance and firm performance: Agency, stewardship, and capabilities. Family Business Review, 19, 73-87.
38.
MillerD.Le Breton-MillerI.LesterR. H. (2010). Family ownership and acquisition behavior in publicly-traded companies. Strategic Management Journal, 31, 201-223.
39.
MillerD.MinichilliA.CorbettaG. (2013). Is family leadership always beneficial?Strategic Management Journal, 34, 553-571.
40.
MinichilliA.CorbettaG.MacMillanI. C. (2010). Top management teams in family-controlled companies: “Familiness,” “faultlines,” and their impact on financial performance. Journal of Management Studies, 47, 205-222.
41.
PazzagliaF.MengoliS.SapienzaE. (2013). Earnings quality in acquired and non-acquired family firms: A socioemotional wealth perspective. Family Business Review, 26, 374-386.
42.
PrencipeA.Bar-YosefS.DekkerH. C. (2014). Accounting research in family firms: Theoretical and empirical challenges. European Accounting Review, 23, 361-385.
43.
PrencipeA.Bar-YosefB.MazzolaP.PozzaL. (2011). Income smoothing in family-controlled companies: Evidence from Italy. Corporate Governance: An International Review, 19, 529-546.
44.
RamannaK.WattsR. L. (2012). Evidence on the use of unverifiable estimates in required goodwill impairment. Review of Accounting Studies, 17, 749-780.
45.
ReesL.GillS.GoreR. (1996). An investigation of asset write-downs and concurrent abnormal accruals. Journal of Accounting Research, 34(Suppl.), 157-169.
46.
RiedlE. J. (2004). An examination of long-lived asset impairments. Accounting Review, 79, 823-852.
47.
SalvatoC.MooresK. (2010). Research on accounting in family firms: Past accomplishments and future challenges. Family Business Review, 23, 193-215.
48.
SchulzeW. S.LubatkinM. H.DinoR. N.BuchholtzA. K. (2001). Agency relationships in family firms: Theory and evidence. Organization Science, 12, 99-116.
49.
ShleiferA.VishnyR. W. (1997). A survey of corporate governance. Journal of Finance, 52, 737-783.
50.
StockmansA.LybaertN.VoordeckersW. (2010). Socioemotional wealth and earnings management in private family firms. Family Business Review, 23, 280-294.
51.
TongY. H. (2008). Financial reporting practices of family firms. Advances in Accounting, 23, 231-261.
52.
VillalongaB.AmitR. (2006). How do family ownership, control, and management affect firm value?Journal of Financial Economics, 80, 385-417.
53.
WestheadP.HoworthC. (2006). Ownership and management issues associated with family performance and company objectives. Family Business Review, 19, 301-316.
54.
YoeG. H. H.TanP. M. S.HoK.ChenS. S. (2002). Corporate ownership structure and the informativeness of earnings. Journal of Business Finance and Accounting, 29, 1023-1046.
55.
ZangY. (2008). Discretionary behaviour with respect to the adoption of SFAS no. 142 and the behaviour of security prices, Review of Accounting and Finance, 7, 38-68.
56.
ZuccaL. J.CampbellD. R. (1992). A closer look at discretionary writedowns of impaired assets. Accounting Horizons, 6, 30-41.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
