Earnings Quality in Family Firms: A quantitative study in Sweden

Abstract

This study investigates the relation between family firms and earnings quality. There are two competing theories on the effect that family firms have on earnings quality, the entrenchment effect with decreased earnings quality and the alignment effect with increased earnings quality. By using a sample of firms listed at the Stockholm Stock Exchange between the years 2005 and 2014. The study empirically examines the effect that the ownership structure has on the discretionary accruals as a proxy for earnings quality. The findings suggest that family firms are associated with lower levels of discretionary accruals. This would support that family firms in Sweden provide earnings of higher quality than their non-family counterparts, which is in line with the alignment theory.