Abstract
This study attempts to examine whether the family control has an impact on the relationship between earnings management and future performance. We also will assess whether the auditor has the important role in family firms. The total sample in this study has covered 918 firm-years or observations. We suggest that the average value of the future performance of family-based firms is better than the one of non-family firms. We also show that accrual earnings management in Indonesia is more opportunistic than efficiency. Finally, bigger auditor firms which selected by family firms have the positive effect on future performance.
Highlights
Meeting or exceeding profits is one of benchmark of managers' performance measurements
Where: CFOt+1serves as a proxy of future performance, discretionary accrual variable (DAC) - is variable of earning management, Family - is proxy of family ownership which measured by used Prabowo & Simpson (2011) approach
We suggest that the discretionary accrual variable (DAC) as earnings management proxy affects positively on future performance variable
Summary
Meeting or exceeding profits is one of benchmark of managers' performance measurements. Managers tend to accomplish the earnings benchmark by conducting earnings management. Previous research by Graham, Harvey, & Rajgopal(2005) stated that accrual-based earnings management negatively impact future performance. Cohen & Zarowin (2010) and Zhu, Lu, Shan, & Zhang (2015) provide new evidence that earnings management tends to negatively affect future performance. Bao & Lewellyn (2017) and Razzaque, Ali, & Mather (2016) found that family firms tend to be me more involved to the earning management, but the question is whether earning management is opportunistic or efficient. Indonesia on relationship between earnings management and future performances and the role of auditors as governance mechanism in family firms
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