Family Governance, Earning Quality, and Firm Performance in Indonesian Listed Firms

Abstract

This research aimed to analyze family firm governance, earning quality, andfirm performance of manufacturing companies listed on the Indonesia StockExchange. This study also investigated the mediating effect of earning qualityon the effect of family governance toward firm performance. Earning quality is measured by earning persistence, earning predictability, earning smoothness, and accrual quality. Firm’s performance is measured by market performancein Tobin-q and operational performance in return on asset. This research usedpooled data in which earning persistence and earning predictability need 11 until 16 years observations, earning smoothness needs 2 until 7- year-observations, and accrual quality needs 12 years observations. The hypotheses testing used pathanalysis. To find empirical evidence, the main hypothesis testing was done bytesting 16 sub-hypotheses. The mediating role of earnings quality was proved bythe measurement of earnings persistence, earnings predictability, and quality ofaccruals. The role of earning quality on the effect of family governance toward firm performance is confirmed. The results show, as much as 6 sub - hypothesessupport the main hypothesis. This study finds the empirical evidence of the roleof earning quality on the effecf of family governance reflected in the involvementof family in board of commisioner toward firm performance (Tobin-q, ROA).Keywords - Business management, family firm, firm performance, family governance, earning quality, descriptive design, Indonesia