The effect of family cohesion on earnings management in private family firms

Abstract

Earnings management practices in private family firms have received little attention when compared to public firms. This thesis examines the effect of family cohesion on earnings management in private family firms, by suggesting that the preservation of socioemotional wealth is an incentive for earnings management. Using a sample of Belgian private family firms, I do not find a significant association between family cohesion and earnings management. However, I do find a non-linear association, in which the level of cohesion is positively associated with earnings management in the lower range of cohesion, while turning negative in the higher range. When including the monitoring effectiveness of the board of directors as moderator, also the direct effect between family cohesion and earnings management became significantly positive. Moreover, the results state that this association becomes weaker when there is a high monitoring effectiveness of the board.