Consequences of earnings management for corporate reputation

Abstract

PurposeBased on earnings management (EM) practices, the purpose of this research is to analyze their market social consequences on corporate reputation. Moreover, this paper illustrates this impact in the context of family firms which are led and controlled by family members, whose main interest is the long-run survival through succession.Design/methodology/approachA sample comprising 1,169 international listed companies for the period 2006-2010 was used.FindingsThe empirical evidence shows the negative impact of these discretionary accounting practices on corporate image. However, family firms have more incentives for controlling and monitoring managerial decisions, avoiding information asymmetries and, thus, EM behavior and their subsequent loss of reputation. Therefore, fewer negative effects on corporate reputation are observed in highly concentrated ownership structures as a result of the negative link between family control and EM.Originality/valueThis study presents a number of contributions because of its focus on specific discretionary practices and on family firms. This study contributes to previous literature on family firms, as previous papers do not tend to focus on EM issues. Moreover, in contrast to most of the studies that have focused on only one country, we use an international panel database. This leads to potentially more powerful and generalized results. In addition, this paper is the first attempt (to the authors' knowledge) to study the possible impact of EM on corporate reputation in the family firm context.