Document Type

Article

Source Publication Title

Journal of Accounting, Auditing & Finance

DOI

10.1177/0148558X231198894

Abstract

Using a sample of 22,442 firm-year observations for 3,721 U.S. listed firms, we show that family firms, on average, issue annual reports with higher readability than non-family firms. Higher readability could occur due to lower obfuscation or less information conveyance. By controlling complexity and choosing readability measures linked to obfuscation, we attribute the higher readability to lower obfuscation. Our investigation into the heterogeneity in family firms shows that the positive effect of family control on reporting readability exists for eponymous family firms but not for non-eponymous family firms. We also find that family firms managed by founders or heirs issue more readable 10-K reports than nonfamily firms, but family firms managed by outsiders do not exhibit such a difference. Crosssectional analyses show that the difference in readability between family and non-family firms diminishes for firms with more earnings manipulation, weaker board governance, and dual-class shares. Further, we find that investors perceive family firms' annual reports with higher readability to be more informative. Finally, we use state-level succession tax cuts as an exogenous shock to link the higher readability to family insiders' incentives and preferences. Our findings are consistent with the view that family insiders' incentive to maintain family reputation contributes to lower obfuscation in 10-K narrative disclosures.

Publication Date

1-1-2023

Language

English

Comments

Qunfeng Liao is an Associate Professor of Accounting at the School of Business Administration, Oakland University. She received her Ph.D. in Accounting from the 30 Journal of Accounting, Auditing & Finance University of Texas at Arlington in 2013. Her research interests include corporate governance, earnings management, and corporate social responsibility. She has published in Review of Accounting Studies and Accounting Horizons, among others. Bin Srinidhi is a Professor of Accounting at the University of Texas at Arlington. He got his Ph.D. from Columbia University in 1984 and has taught at several universities in the U.S. and Hong Kong before joining the University of Texas at Arlington in 2012. He has published over 50 articles spanning governance, board diversity, quality management, and transfer pricing in various journals. Ke Wang is an Associate Professor of Accounting at the Alberta School of Business, University of Alberta. He received his Ph.D. in accounting from the City University of Hong Kong in 2015. His research interests include corporate disclosures, textual analysis, and stakeholder relations. His research has been published in Contemporary Accounting Research and Organization Science and funded by the Social Sciences and Humanities Research Council (SSHRC), Federal Government of Canada.

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