Corporate Governance, Family Ownership and Earnings Management: Emerging Market Evidence

Abstract

Earnings management (EM) is particularly important for family-firms which are exposed to more severe type-II agency conflicts between minority and majority shareholders than non-family firms. This study investigates the effectiveness of independent boards, audit committees and the presence of an internal audit function (IAF) in monitoring and controlling EM in family-owned firms. Overall, the results suggest that total accruals management is lower in family-owned than in non-family-owned firms, but that there is no difference in the direction of accruals. Family ownership is also found to reduce the monitoring effectiveness of independent boards and IAFs regarding earnings management.