CEO Overpower and Real Earning Manipulation in Family Businesses: Do Ownership Structures Matter?

Abstract

Our study is the first to analyze the influence of CEO power and ownership structures on earning manipulation. This study also clarifies whether different ownership structures discourage powerful CEOs from manipulating earnings in family businesses. The sample data is a balanced panel with 985 observations of 116 family businesses in Vietnam from 2005 to 2020. We primarily employ the dynamic system Generalized Method of Moments with cross-sectional fixed effect to overcome endogeneity and heterogeneity issues. Our findings indicate the negative relationship between CEO power and earning manipulation. Higher state or institutional ownership restrains powerful CEOs from manipulating earnings in family businesses. However, Powerful CEOs in family businesses with higher participation of blockholders increase the earning manipulation. Our robustness results show that CEOs from 50 to 70 years old reduce earning manipulation the most in family businesses. Our findings support agency theory, stewardship theory, resource dependency theory, monitoring and accountability theory, legal framework theory, reputation theory, monitoring theory, Maslow’s need hierarchy, and prior literature. Our study contributes practical policy and management implications to sustainably reduce earning manipulation in family businesses.