Controlling generation of family firms and earnings management in Indonesia: The role of accounting experts of audit committees

Abstract

This study aims to identify whether the controlling generation (founder vs. descendant) of family companies in Indonesia affects earnings management and analyze the role of accounting experts of audit committees in minimizing the implementation of earnings management. A total of 258 samples are collected from manufacturing group companies listed in the 2012-2017 Indonesian stock exchange. A modified Jones model is used as a proxy for earnings management. Results reveal that controlling by the first generation negatively affects earnings management. Trend analysis results also show that family companies owned and managed by the first generation via earnings management remain stable for 6 consecutive years compared with that of family group companies owned and managed by the second generation. Accounting experts of audit committees negatively influence earnings management in family firms.