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Accounting discretion in family firms: the analysis of goodwill impairment

Accounting discretion in family firms: the analysis of goodwill impairment

Neri, Lorenzo and Greco, Giulio (2017) Accounting discretion in family firms: the analysis of goodwill impairment. [Working Paper] (Unpublished)

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Abstract

In recent years, the family business literature has been featured by an increasing interest on accounting choices in family firms. In this paper, we attempt to contribute to this growing stream of literature and, basing on the socio-emotional wealth (SEW) perspective, we focus on the differences within family firms regarding accounting discretion in goodwill impairment decisions. We investigate a sample of US public firms in the period 2003-2015. As predicted by the SEW, our findings show that family firms are less likely to exploit discretion in goodwill impairment decisions than non-family firms. We also find that first generation family firms are more likely to exploit accounting discretion in goodwill impairment decisions than second or later family firms. First generation family firms display SEW concerns different from those of second or later generation family firms. This leads to a different approach to goodwill impairment.

Our paper can contribute to earnings management literature in family firms. We show that family firms cannot be considered as a homogeneous group with the same propensity to exploit the discretion allowed by accounting rules in highly subjective fair value measurements. We suggest that earnings management literature needs a more fine-grained investigation on how family ownership affect accounting discretion. Once the firm control is ensured, the level of ownership may be less relevant than other features, such as the generational stage. Our paper can also contribute to family business studies. We show that SEW concerns affect complex fair value measurements with relevant impact on the financial markets, on the assessment of the firm’s health and ultimately on the controlling family supervising activity of the management. Our study has practical implications. Investors, banks, bondholders and lenders are now informed that goodwill financial reporting quality can vary across family firms at different generational stages and that SEW-related concerns can affect goodwill write-off decision in first generation family firms.

Item Type: Working Paper
Uncontrolled Keywords: Family business, Goodwill, Impairment, Socio-emotional wealth
Subjects: H Social Sciences > HF Commerce > HF5601 Accounting
Faculty / Department / Research Group: Faculty of Business
Faculty of Business > Department of Accounting & Finance
Last Modified: 10 May 2017 13:15
Selected for GREAT 2016: None
Selected for GREAT 2017: GREAT c
Selected for GREAT 2018: None
URI: http://gala.gre.ac.uk/id/eprint/16795

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