This paper investigates whether family ownership affects decisions to take a write-off of the goodwill and the amount written off. This study is based on a panel of public United States firms. Consistent with predictions based on agency theory and socio-emotional wealth (SEW) theory, the findings demonstrate accounting discretion in goodwill impairment is lower in family firms than non-family firms. The results also show that first-generation family firms are more likely to exploit accounting discretion in goodwill impairment decisions than second or later generation family firms, due to greater concerns associated with the negative consequences of the write-off. This paper contributes to previous research on accounting in the context of family firms. Family firms cannot be considered a homogeneous group with the same propensity to exploit the discretion allowed by accounting rules in highly subjective fair value measurements. Generational change significantly influences firms’ accounting choices, leading to more credible earnings and asset values for second or later generation family firms. This study also suggests the earnings management literature would benefit from additional in-depth investigation into how the generational stage of family businesses affects accounting discretion.

Accounting discretion in family firms: the case of goodwill write-off Evidence from US firms

Lorenzo Neri
2021-01-01

Abstract

This paper investigates whether family ownership affects decisions to take a write-off of the goodwill and the amount written off. This study is based on a panel of public United States firms. Consistent with predictions based on agency theory and socio-emotional wealth (SEW) theory, the findings demonstrate accounting discretion in goodwill impairment is lower in family firms than non-family firms. The results also show that first-generation family firms are more likely to exploit accounting discretion in goodwill impairment decisions than second or later generation family firms, due to greater concerns associated with the negative consequences of the write-off. This paper contributes to previous research on accounting in the context of family firms. Family firms cannot be considered a homogeneous group with the same propensity to exploit the discretion allowed by accounting rules in highly subjective fair value measurements. Generational change significantly influences firms’ accounting choices, leading to more credible earnings and asset values for second or later generation family firms. This study also suggests the earnings management literature would benefit from additional in-depth investigation into how the generational stage of family businesses affects accounting discretion.
File in questo prodotto:
Non ci sono file associati a questo prodotto.
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11697/147897
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus ND
  • ???jsp.display-item.citation.isi??? ND
social impact