Economic bonding, corporate governance and earnings management: Evidence from UK publicly traded family firms

Abstract

This study examines whether auditor–client economic bonding and corporate governance moderate the adverse effects of principal–principal agency problems on earnings quality in U.K.‐listed family firms. We find that although earnings management is lower in family firms, there is a higher tendency of earnings management for those firms with economic bonding. However, such an impact may be moderated by good governance mechanisms where the latter may alleviate the adverse effects of the lack of auditor independence on the association between earnings management and family firms.