The Board of Directors in Family Controlled Firms

Research in Accounting in Emerging Economies, 2008

Purpose -The relationship between the board characteristics (i.e. board independence, CEO duality, board size, board meeting and board tenure) and the ownership structure (i.e. managerial ownership, family ownership and institutional ownership) and earnings quality is examined.

Accounting and Finance Research, 2013

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.

Procedia - Social and Behavioral Sciences, 2014

This paper examines the relationship between board independence and accounting conservatism among Malaysian companies in year 2000 until 2012. What triggers the researchers to carry out this study is that studies found that the implementation of Malaysian Code of Corporate Governance to Malaysian companies has created a higher confidence level to investors and enhances the company's image. Further, one of the elements of good corporate governance is the board independence. However, few studies discuss on accounting conservatism. It is argued that accounting conservatism is an effective mechanism to address the agency problem. Based on the findings, interestingly, this study found that higher board independence does not align with higher conservatism. Instead, the independent non-executive directors do not actually have the power of 'independence', monitoring and advising the board of directors.

E+M Ekonomie a Management

This study explores the relationship between internal corporate governance mechanism and accruals and real earnings management (EM), following Pakistan’s 2012 amended Code of Corporate Governance. It also examines the moderating role of family firms on the relationship among corporate governance mechanisms and accruals and real earnings management. For this purpose, we used a sample of 172 firms listed on the Pakistan Stock Exchange (PSX) for 2012–2019. The dependent variables were estimated by utilizing the generalized method of moments (GMM), fixed random effects and moderation analysis were estimated through Stata. Hausman specification test was used to choose among random and fixed effects. Results report that board size showed a significant positive impact on abnormal discretionary expenses and overall real earnings management. Board independence led to a substantial and negative impact with accruals EM. Managers of familyowned firms are also opportunistically altering the repo...

Asian Journal of Accounting and Governance, 2011

Many overseas studies discussed the topic of corporate governance and performance in family companies, however, few studies have been conducted in Malaysia. The objective of this paper is to examine the board mechanisms and family companies' performance using three performance indicators (Tobin's Q, Earnings Per Share & Operating Cash Flow). The sample size is 189 family companies listed on Bursa Malaysia from 2003 to 2007. The findings from this study reveal that some of the board mechanisms influence family companies' performance. This study evidenced that family companies with a large board size, low directors' expertise and duality leadership contribute to higher family companies' performance. However, this study found that the academic qualification of directors does not influence firm performance. Therefore, generally, regulators and investors need to be sensitive to the fact that family companies do have differences in corporate governance practices compared to non-family companies.

2013

We examine whether the representation of women on the boards and the audit committees is associated with a reduction in earnings management. We also observe if family ownership moderates the relationship between women on boards (and audit committees) and earnings management. Examining Bursa Malaysia listed firms in 2008, we show that the presence of women on the boards and audit committees would restrict earnings management. This is especially so for non-family-owned firms, but for family-owned firms such evidence was not found. This suggests that women outperform men in the accounting oversight role when control from family members is minimal. © 2013 AARESOC.

SSRN Electronic Journal, 2008

We compare corporate governance and performance between family and non-family ownership of public listed companies in Malaysia from 1999 through 2005 measured by Tobin's Q, ROA and ROE. We find that on average, family ownership experiences a higher value than non-family ownership based on ROE. However, firm value is lower in family than non-family ownership based on Tobin's Q and ROA. In the analysis, the board size, independent director and duality for family and non-family ownership has a strong significant influence on firm performance.

SSRN Electronic Journal, 2012

Board of directors has gained much attention in improving corporate governance in recent years. Many reforms have been done to ensure that board of directors is effective. In general, the codes of good governance in many countries, including developed and developing markets call for greater independent directors. All these reforms show the importance of composition of boards in playing their role as advisors and monitors to the management activities. In Malaysia specifically, Malaysian Code on Corporate Governance codified the best practices of good governance and described optimal corporate governance structures. However, due to different context of business practices and nature of business environment in emerging markets, we expect that the determinants for the board structure will be deviated from the developing markets. Our study investigates the determinants of board structure for Malaysian firms from year 2000 to 2007. We also examine corporate board structure trends and the compliance level of board of directors in Malaysia with the requirement in Malaysian Code on Corporate Governance. Overall, we find that the board independence shows an upward trend throughout the years. Our results also suggest that board size and board independence are correlated with the operation level of the firms and only the board size is consistent with the monitoring hypothesis prediction.

Cogent Economics & Finance, 2021

This study investigates real earnings management in family firms and further examines the moderating effects of the independence and compensation of directors. Based on a sample of 106 non-financial public listed firms over 5 years in Saudi Arabia, the empirical results show that family firms are positively linked to real earnings management. This result supports the entrenchment hypothesis that family firms have lower earnings quality due to manipulation in real activities. Further, we found evidence that the proportion of independent directors and the compensation paid to directors both interacted in family firms to reduce real earnings management. Our findings suggest that increasing the proportion of independent directors and paying higher compensation to directors are one workable way for family firms to mitigate their real earnings management behaviour.

wbiaus.org

This study investigates the influence of strong committee of independent directors on the board of directors on firm value. We focus on the factors that strengthen independent directors' performance of fiduciary duties notably the presence of independent financial expert, senior independent director, independent board's chairman, and absence of top management executives and presence of family members on the board of directors. We conduct our research using 221 samples of Malaysian listed companies. This study extends prior research by emphasizing the significance of regulating the appointment of independent financial expert and the support of independent director with in depth corporate governance experience on the board. The results show that board oversight roles enhanced firm performance when a senior independent director and an independent board's chairman were present on the board where CEO, CFO, COO or MD was not a board member. Furthermore, the negative relationship between the proportion of family member director on the board and firm performance supported the imperativeness of higher independent director presence on the board. These findings provide empirical evidence in support of the significance of board independence as an effective governing mechanism for monitoring family-member director influence on board decisions. On the other hand, the negative relationship between the presence of more than majority independent director on the board and firm performance signifies their productivity is valued more than numbers.

KnE Social Sciences

This study aimed to obtain empirical evidence regarding the influence of corporate governance and audit quality on earnings management measures, as well as their relationship with the effect of family ownership. Research on earnings management has been widely conducted, but research in family firms is still limited, while based on previous observational data, 95% of companies in Indonesia are family firms. In addition, the difference in the concept of corporate governance in developing countries compared to developed countries is crucial in relation to company supervision patterns. Earnings management practices carried out by company management can be caused by the occurrence of information asymmetry in which management as an agent has more information related to the company than the company owner. This information asymmetry is used by managers to mislead other parties with the aim of increasing their managerial career or compensation. Implementing the corporate governance mechanism...

Journal of modern accounting and auditing, 2010

Identifying corporate governance mechanisms to improve firm performance has been at the forefront of policy discussion and research in recent years. Existing research in this area focuses on large-capitalisation firms, and has not provided much insight on smaller firms. This paper tests for the optimality of deployment of governance mechanisms for Canadian small-cap firms by estimating a simultaneous equation system that links four control mechanisms to firm performance, using recent data. The results confirm simultaneity between several governance mechanisms and Canadian small-cap firm performance. CEO ownership and shareholder rights are shown to determine board independence. CEO ownership in turn is shown to depend on the extent of shareholder rights and whether the CEO is also Chairperson of the board. Canadian small-cap firms appear to overutilise debt as a control mechanism. There is somewhat weaker evidence that board independence and CEO ownership are beyond the optimum. The latter, given the relatively high degree of CEO ownership in Canadian small-cap firms, is consistent with management entrenchment. We also do not find any significant discount to performance for Quebec-based firms, or for firms with dual or multiple voting class shares structures.

Asian Review of Accounting, 2016

PurposeThe purpose of this paper is to determine whether the representation of women on the boards (WOMBDs) and audit committees is associated with a reduction in the practice of earnings management and whether women are associated with income reducing (conservative) rather than income-increasing (aggressive) earnings management. The authors further argue that family ownership moderates the relationship between the presence of WOMBDs and audit committees and earnings management.Design/methodology/approachThe study uses non-finance firms listed on Bursa Malaysia over a period of four years, i.e. from 2008 until 2011.FindingsThe evidence reveals that the presence of WOMBD or audit committee is not associated with a propensity for earnings management. In addition, the evidence also reveals that family ownership does not interact either with WOMBD or with women on the audit committee (WOMAC) to influence the propensity for earnings management. Nevertheless, the additional analyses show ...

International Review of Economics & Finance, 2015

This study examines the relationship between family firms and earnings management by considering the influence of board independence. Based on a sample of 379 listed high-technology firms over 7 years in Taiwan, we find that family firms are positively related to earnings management. Further, we find two interaction effects: (1) the proportion of independent directors interacted with family firms to reduce the earnings management, and (2) CEO duality interacted with family firms to increase the earnings management. Our findings suggest that board independence is important for an emerging market to mitigate the earnings management behavior carried out by family firms.

Asian-Pacific Economic Literature, 2011

We analyse the relationship between board structure and firm performance in familycontrolled firms, using a sample of Indonesian non-financial companies. We find that the share of independent directors on the board has an insignificant relationship with firm performance. We suspect that the result is driven by the lack of institutional reforms in relation to the appointment of independent directors. Our analysis shows strong empirical support for the proposition that family control (family ownership and family involvement on the board) is negatively related to firm performance. However, the significant effect of family ownership disappears when family involvement on the board is taken into the model. This result indicates that family ownership is more detrimental to firm performance whenever the family is highly involved in control decisions. Our results suggest that Indonesia needs to implement governance reforms that prevent majority owners from exercising excessive control over firms.