Ownership , Quality of Earnings, and Family Firms in Japan

Takashi, Ebihara, Keiichi Kubota, Hitoshi Takehara, Eri Yokota

We investigate quality of earnings of publicly traded family firms in Japan. Family firms have strong incentives to seek for long-term orientations as well as to bequeath their businesses to their descendants. The long-term orientations eliminate opportunistic earnings management of firms to protect firms’ reputations. Such characteristics of family firms should increase the effectiveness of monitoring and potentially improve earnings quality. We find the discretionary accruals of family firms are lower after controlling for other characteristic of the firms than non-family firms, and that the quality of earnings is higher. This finding is consistent with effective monitoring of family firms, which may stem from their long-term orientations. We find that the accruals quality of family firms, in which the founder has executive authority over the firm, is almost the same with that of non-family firms. It implies the long-term orientations of the founder may be different from that of the descendants. Finally, we observe a U-shaped relationship between the founding family stock ownership and earnings quality. The relationship is similar to the findings for U. S. data.

武蔵大学論集

武蔵大学経済学会

63

1