Accounting discretion in family firms: The case of goodwill write-off. Evidence from US firms

Author/s Giulio Greco, Lorenzo Neri
Publishing Year 2021 Issue 2021/1
Language English Pages 24 P. 5-28 File size 116 KB
DOI 10.3280/FR2021-001001
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This paper investigates whether family ownership affects decisions to take a writeoff of the goodwill and the amount written off. This study is based on a panel of public United States firms. Consistent with predictions based on agency theory and socioemotional wealth (SEW) theory, the findings demonstrate accounting discretion in goodwill impairment is lower in family firms than non-family firms. The results also show that first-generation family firms are more likely to exploit accounting discretion in goodwill impairment decisions than second or later generation family firms, due to greater concerns associated with the negative consequences of the write-off. This paper contributes to previous research on accounting in the context of family firms. Family firms cannot be considered a homogeneous group with the same propensity to exploit the discretion allowed by accounting rules in highly subjective fair value measurements. Generational change significantly influences firms’ accounting choices, leading to more credible earnings and asset values for second or later generation family firms. This study also suggests the earnings management literature would benefit from additional in-depth investigation into how the generational stage of family businesses affects accounting discretion.

Keywords: Agency theory; family ownership; goodwill; impairment; socio-emotional wealth.

Jel codes: G32, G34, M41

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  • Accrual quality, investor reaction to earnings, and the confirmatory role of sales news Carlo D�Augusta, in FINANCIAL REPORTING 2/2023 pp.97
    DOI: 10.3280/FR2023-002004

Giulio Greco, Lorenzo Neri, Accounting discretion in family firms: The case of goodwill write-off. Evidence from US firms in "FINANCIAL REPORTING" 1/2021, pp 5-28, DOI: 10.3280/FR2021-001001