Influence of family control in the practice of earnings management: The case of open Brazilian companies

Abstract

Purpose

The purpose of this paper is to identify if the open Brazilian companies that have family control manage their accounting results in a negative way, and if this influence is in a positive sense of pushing the results down, that is, worsening their present profits due to future results.

Design/methodology/approach

The empirical investigation is developed using as a sample 123 Brazilian companies listed on BM&FBovespa, totaling 1.353 observations for a period of 11 years (2000‐2010). Data analysis is conducted by means of regression with panel data, method of ordinary least squares (OLS), and random effects.

Findings

First, it was found that family‐type companies show lower profits compared to profits earned by non‐family companies. Nevertheless, it was observed that family businesses have negative discretionary accruals higher than those submitted by non‐family firms, and that family control has a positive influence on this type of earnings management.

Research limitations/implications

The article provides an extension to earlier work focused on the relationship between family ownership and earnings management results.

Practical implications

The paper provides a more critical look at family property, especially as regards the quality of their accounting information.

Originality/value

The study not only investigates whether family control is positively related to discretionary accruals of Brazilian companies; it also checks the influence of family property on the production of negative accruals – “take a bath”.

Citation

Sérgio Almeida‐Santos, P., Carpes Dani, A., Gomes Machado, D. and Thais Krespi, N. (2013), "Influence of family control in the practice of earnings management: The case of open Brazilian companies", Management Research, Vol. 11 No. 1, pp. 77-99. https://doi.org/10.1108/1536-541311318080