Earnings management in family versus non-family firms. A review and research advancement

Earnings management has recently gained increasing attention among family business scholars. Yet, in spite of the economic significance of family businesses worldwide and the relevance of earnings management in linking their operations with external investors, research on earnings management practices in these firms remains relatively limited. Based on a comprehensive overview of existing literature, this chapter identifies relevant gaps in understanding the unique agency problems and socio-emotional factors influencing earnings management in family firms compared to non-family counterparts. Thus, it proposes hypotheses regarding the distinctive sources of earnings management in these two organizational forms. An empirical analysis of manufacturing firms listed from 2009 to 2023 reveals contrasting behaviors: as firm size and financial distress increase, earnings management rises in family firms but declines in non-family firms. This chapter ultimately contributes to a nuanced understanding of the earnings management dynamics in family enterprises.