Phased Earnings Management Of Intergenerational Succession Of Family Firms

Chinese family firms are in the peak period of intergenerational succession,and the 2nd generation involvement become an important choice of family development due to the blood relationship.Because of the information asymmetry and lacking experience,family founder's special resources cannot be transfered easily,so the 2nd generation are in "domestic trouble and foreign invasion".Business performance and corporate shares both fell after the 2nd generation involvement.The family founder need to pave the way for the next generation during intergenerational succession and they may conduct the negative real earnings management to reduce performance starting point,guarantee a high profit growth space.Also,a large amount of expenditure on R&D and advertising points out the direction on how the firm the sustainablely develop so that the 2nd generation have more time to take over the company and smoothly absorb the special resources.However,positive real earnings management,which invade the interests of small and medium-sized investors,is often not conducive to the long-term development of family enterprises and should be constrained.Based on the perspective of the change of the control power,the intergenerational succession is divided into two stages:the preparation period and the takeover period.This thesis using family firms listed on the SME Board and GEM from 2009 to 2014 analyzes different earnings management behavior,economic consequences,the implementing conditions of negative real earnings management and effective constraint mechanism to positive real earnings management of family firms during intergenerational succession with the help of the Roychowdhury(2006)model.The empirical results show that:(1)family firms conduct phased real earnings management during intergenerational succession.Family firms tend to conduct negative real earnings management in the form of expenses manipulation during participate period and to conduct positive real earnings management in the form of costs manipulation during take over period of intergenerational succession.(2)The negative real earnings management has a positive long-term impact on the enterprise value in the participate period of intergenerational succession.The positive real earnings management have long-term negative impact on enterprise value in the take over period of intergenerational succession.(3)It is more likely that family firms conduct negative real earnings management with higher profit and younger firm age.(4)The positive real earnings management is often not conducive to the long-term development of family enterprises and should be constrained.The internal control quality become higher,2nd generation of the family have learned in foreign country before or know something related to business,the possibility of family firm conducting positive real earnings management become less during intergenerational succession.However,institutional environment has limited influence on positive earnings management in intergenerational succession of family firms.According to the empirical results and research conclusions,the thesis also puts forward some relevant suggestions:(1)family firms need to improve the quality of internal control to restrain the positive earnings management.(2)Family firms should attach importance to the personal cultivation of the 2nd generations of the family to restrain the positive earnings management.The contribution and value of this thesis is to provide a new perspective for analyzing the altruism behavior of family frms in intergenerational succession period,and distinguish the principal-agent behavior and altruistic behavior of family firm by real earnings management.Also,this thesis found that the quality of internal control and the personal cultivation of the 2nd generations is key to the success of intergenerational succession.