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Do Family Firms Choose Conservative Accounting Practices?

Author

Listed:
  • Mehul Raithatha

    (Indian Institute of Management Indore, Prabandh Shikhar, Rau-Pithampur Road, Indore, Madhya Pradesh 453556, India)

  • Tara Shankar Shaw

    (Indian Institute of Technology Bombay, IIT Bombay, Powai, Mumbai 400 076, Maharashtra, India)

Abstract

We investigate whether family firms are motivated to adopt conservative accounting practices, given their unique characteristics of high promoter holdings, less diversified equity, and long-term interest in the business. We examine whether heterogeneity within family firms, captured through family members’ involvement in management and the firm’s affiliation to a business group, drives conservative behavior. We test our model on a sample of 2534 listed Indian firms from 2006 to 2015. Our results indicate that family-controlled firms are more conditionally conservative in their accounting practices, especially when family members manage them and when they are affiliated with a business group. These findings are robust to alternative measures of conservatism and also after controlling for omitted variable bias and reverse causality.

Suggested Citation

  • Mehul Raithatha & Tara Shankar Shaw, 2019. "Do Family Firms Choose Conservative Accounting Practices?," The International Journal of Accounting (TIJA), World Scientific Publishing Co. Pte. Ltd., vol. 54(04), pages 1-44, December.
    • Handle: RePEc:wsi:tijaxx:v:54:y:2019:i:04:n:s1094406019500148
    DOI: 10.1142/S1094406019500148
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    Citations

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    Cited by:

    1. Chada, Swechha & Saravanan, Palanisamy & Varadharajan, Gopal, 2024. "Socioemotional wealth and cash flow sensitivity of cash: Evidence from India," The North American Journal of Economics and Finance, Elsevier, vol. 69(PA).
    2. Shankar Shaw, Tara & Raithatha, Mehul & Krishnan, Gopal V. & Cordeiro, James J., 2021. "Did mandatory CSR compliance impact accounting Conservatism? Evidence from the Indian Companies Act 2013," Journal of Contemporary Accounting and Economics, Elsevier, vol. 17(3).
    3. Shruti, R. & Thenmozhi, M., 2023. "Founder ownership and value relevance of IFRS convergence: Role of institutional investors," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).
    4. Faruk Bhuiyan & Tarek Rana & Kevin Baird & Rahat Munir, 2023. "Strategic outcome of competitive advantage from corporate sustainability practices: Institutional theory perspective from an emerging economy," Business Strategy and the Environment, Wiley Blackwell, vol. 32(7), pages 4217-4243, November.
    5. Johnathon Cziffra & Steve Fortin & Zvi Singer, 2023. "Differences in government accounting conservatism across jurisdictions, their determinants, and consequences: the case of Canada and the United States," Review of Accounting Studies, Springer, vol. 28(2), pages 1035-1073, June.
    6. Jo-Ting Wei, 2021. "Financial Reporting Material Misstatements, Earnings Conservatism and Managerial Replacement Decisions," International Journal of Business and Economic Sciences Applied Research (IJBESAR), Democritus University of Thrace (DUTH), Kavala Campus, Greece, vol. 14(1), pages 7-21, June.
    7. Kettunen, Jukka & Martikainen, Minna & Voulgaris, Georgios, 2021. "Employment policies in private loss firms: Return to profitability and the role of family CEOs," Journal of Business Research, Elsevier, vol. 135(C), pages 373-390.

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