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CEO career horizons and earnings quality in family firms

Ayoib B. Che-Ahmad (Tunku Puteri Intan Safinaz School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok, Malaysia)
Salau Olarinoye Abdulmalik (Tunku Puteri Intan Safinaz School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok, Malaysia)
Nor Zalina Mohamad Yusof (Tunku Puteri Intan Safinaz School of Accountancy, College of Business, Universiti Utara Malaysia, Sintok, Malaysia)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 20 April 2020

Issue publication date: 24 April 2020

538

Abstract

Purpose

The present study examines the effect of the chief executive officer (CEO) career horizon (CH) problem on earnings quality (ERN) for selected family-controlled firms known to have a unique operational goal.

Design/methodology/approach

The generalised method of moment linear regression model was used on a sample of family-controlled firms in Malaysia from 2005 to 2016.

Findings

The study found a negative relationship between CH and ERN, measured by earnings persistence and earnings predictability. However, in the earnings predictability model, the reverse was found to be the case after interacting CH with CEO family affiliation, CEO experience and CEO equity. However, the use of a reputable auditor could not mitigate the CH problem. Also, the study obtained a closely related result in the earnings persistence model. The result aligns with the socio-emotional wealth (SEW) theory, which states that the goals of family-controlled firms go beyond financial objectives to include other non-financial objectives, and hence, their commitment to perpetuating their dynasty encourages them to preserve the quality of their earnings.

Originality/value

Existing studies on family firms and ERN have treated family firms as homogeneous entities by comparing family and non-family firms, using the underlying theoretical justification of the agency theory. However, this study departs from the agency theory, by considering those factors (i.e. the extent of CEO alignment with family owners and the choice of auditor), using the SEW theory, which establishes the differences among family firms. This work builds on that of Chen et al., (2018) and Ali and Zhang (2015), which suggested that corporate governance can mitigate the CH problem. Therefore, the strength of a CEO's attachment to the family firm (measured by CEO equity ownership and CEO affiliation to family members in family firms) and the choice of the auditor can explain the variation in the effect of the CH problem in family firms.

Keywords

Acknowledgements

The authors wish to acknowledge the management and staff of Universiti Utara Malaysia for the grant awarded for this research. Likewise, the valuable contribution received from the reviewers at the Journal of Contemporary Accounting and Economics (JCAE) 2019 conference is greatly acknowledged.

Citation

Che-Ahmad, A.B., Olarinoye Abdulmalik, S. and Mohamad Yusof, N.Z. (2020), "CEO career horizons and earnings quality in family firms", Asian Review of Accounting, Vol. 28 No. 2, pp. 153-172. https://doi.org/10.1108/ARA-02-2019-0029

Publisher

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Emerald Publishing Limited

Copyright © 2020, Emerald Publishing Limited

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