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Accounting Research in Family Firms:Theoretical and Empirical ChallengesAnnalisa Prencipea, Sasson Bar-Yosefa & Henri C. Dekkerbc

a Department of Accounting, Bocconi University, Milano, Italyb Department of Accounting, VU University Amsterdam,Amsterdam, The Netherlandsc Department of Accounting, University of Melbourne, Parkville,AustraliaPublished online: 28 May 2014.

To cite this article: Annalisa Prencipe, Sasson Bar-Yosef & Henri C. Dekker (2014) AccountingResearch in Family Firms: Theoretical and Empirical Challenges, European Accounting Review, 23:3,361-385, DOI: 10.1080/09638180.2014.895621

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Accounting Research in Family Firms:Theoretical and Empirical Challenges

ANNALISA PRENCIPE∗, SASSON BAR-YOSEF∗ and HENRI C. DEKKER∗∗,†

∗Department of Accounting, Bocconi University, Milano, Italy, ∗ ∗Department of Accounting, VU University

Amsterdam, Amsterdam, The Netherlands and †Department of Accounting, University of Melbourne, Parkville,

Australia

(Received: June 2013; accepted: December 2013)

ABSTRACT Family firms play a significant role in the global economy. Consistently, over the last twodecades academia has turned its attention to the family dimension as a determinant of business phenomena,and this interest has increased over time. While family business research has reached an age of‘adolescence’ as a field of study, accounting research to date seems to have been rather slow to pick up onthe distinctive characteristics of family firms, and their implications for accounting and reporting practices.In an attempt to accelerate and support research in the field, in this article we highlight theoretical andempirical challenges that accounting scholars need to consider when addressing issues related toaccounting and reporting in family firms. These challenges include the selection and potential mixing ofappropriate theoretical frameworks, and complications in defining operationally what family firms are. Wealso provide a ‘state of the art’ of studies in financial accounting, management accounting and auditing,identifying which issues in relation to family firms have been addressed in the research, and whichtheories, research methods and types of data have been used in these studies. We conclude by providingdirections for future research that can advance our understanding of accounting and reporting in family firms.

1. Introduction: The Relevance of the Issue

Family firms are prevalent and play a significant role in the global economy. According to the

Family Firm Institute (2008), family businesses generate an estimated 70–90% of global GDP

annually. In the USA, the greatest part of the wealth lies with family-owned businesses. Eighty

to ninety per cent of all enterprises in North America are family firms, contributing 64% of the

GDP and employing 62% of the US workforce. Family firms are common among listed US com-

panies. Prior studies indicate that over 35% of S&P 500 Industrials and about 46% of the S&P

1500 are classified as family firms (Anderson & Reeb, 2003; Chen, Chen, & Cheng, 2008). In

Europe, these numbers are similarly significant. For example, in France 83% of businesses

are classified as family firms and employ close to half of the French workforce. Seventy-nine

per cent of German businesses are labelled as family firms, employing around 45% of the coun-

try’s workforce and creating over 40% of the national turnover. Similarly, in Italy 73% of firms

are family-owned and over 50% of the Italian workforce is employed by such firms.

Notwithstanding the significant presence of family firms worldwide, it is only over the last few

decades that academia has turned its attention to the family dimension as a determinant of

Correspondence Address: Annalisa Prencipe, Bocconi School of Management, Bocconi University, Via Roentgen 1,

room 5-4a-07, 20136 Milano, Italy. Email: [email protected]

Paper accepted by Salvador Carmona.

European Accounting Review, 2014

Vol. 23, No. 3, 361–385, http://dx.doi.org/10.1080/09638180.2014.895621

# 2014 European Accounting Association

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mailto:[email protected]

business phenomena, with a significant growth in interest over time. According to a recent

review, the very first academic article dealing (indirectly) with a family firm issue was published

by Trow (1961) on the topic of executive succession in small companies (Benavides-Velasco,

Quintana-Garcıa, & Guzman-Parra, 2013). Around the 1980s and during the 1990s, a series

of economic events triggered interest in this area of research. Among these events was the

restructuring of a number of large companies in the USA, and the economic crisis in Europe

that impacted state-controlled corporations. During that period it appeared that family businesses

were more successful, and this motivated scholars to understand better the reasons behind the

success of family firms and the implications of their business model (Culasso, Broccardo,

Giocosa, & Mazzoleni, 2012).

Although the field of family firms has been of interest to researchers in the area of manage-

ment since the 1980s, in the early years the study of family businesses fell into the field of soci-

ology, and at a later stage into small business management. Only during the last decade has a

growing diversity of research interests led to the development of a more comprehensive and

interdisciplinary body of knowledge related to family companies. Indeed, the majority of

studies on family firms found in business, management, economics and finance journals have

been published in the last decade, reinforcing the recent surge of interest in the field.1

Family business research has now reached an age of ‘adolescence’ as a field of study (Gedaj-

lovic, Carney, Chrisman, & Kellermanns, 2012). Academic institutions have begun to establish

specialised departments, the number of chairs endowed to academics with a research focus on

family firms has increased, and international conferences on the issue have become more

common. These developments are indicators of the increasing maturity of the research field

(Gomez-Mejia, Cruz, Berrone, & De Castro, 2011).

Despite these changes over the past few decades, accounting in family firms appears still to be

emerging as a field of inquiry. Although the number of published articles on accounting and

reporting issues in family companies has been steadily growing during the last few years,

there is still a substantial amount of ground to be covered before the intensity of family firm

research in accounting reaches a similar status as in other academic disciplines. In this article,

we intend to highlight some of the major challenges that accounting researchers face when

addressing research questions related to family firms, in an effort to identify possible directions

for future research. We believe that failing to consider the potential influence of the family

dimension in many accounting studies may lead to incomplete or even misleading conclusions;

therefore we call for accounting scholars to be more aware of its impact and consequences.

The remainder of this paper is structured as follows: in Section 2, after summarising the main

features of family firms, we discuss the theoretical challenge, focusing on the most commonly

used and emerging theoretical perspectives in family business research. In Section 3 we intro-

duce and address the empirical challenge, i.e. the problem of defining family firms. In Section

4 we provide a ‘state of the art’ of research on accounting and reporting in family firms, and

in Section 5 we conclude by providing some directions for future research.

2. The Theoretical Challenge

The first challenge that accounting researchers face when addressing issues related to family

firms is theoretical. Indeed, family firms are characterised by a number of different features,

implying that choosing the ‘right’ theoretical framework is a rather complicated task. Therefore,

1For some statistics about research and publications on family firms, see Siebels and Knyphausen-Aufseß (2011) and

Benavides-Velasco et al. (2013).

362 A. Prencipe et al.

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before addressing the theoretical challenge, it is worth highlighting the main features that

characterise family businesses, and that differentiate them from non-family firms. These features

generally follow from the strong interaction/integration between family and business life in

family firms that is not present in non-family firms (e.g. Habbershon & Williams, 1999).

In family businesses, the controlling owners typically have sufficient power to guarantee that

the firm pursues their own interests and goals (Anderson & Reeb, 2003, 2004). While this feature

is not exclusive to family firms, the pursued interests and goals typically represent one of the

unique aspects of family firms. In particular, in family firms a prominent role is played by none-

conomic factors, such as the emotional attachment of the family to the business (e.g. Gomez-

Mejia et al., 2011). Typically, family affairs and family members’ emotions – such as love,

loyalty, intimacy, jealousy and anger – tend to permeate the business affairs. Family

members strongly identify themselves with the firm (even more so when the firm carries the

family name), and the manner in which others perceive the firm directly affect their own

image and reputation (e.g. Chrisman, Chua, Kellermanns, & Chang, 2007; Miller & Le

Breton-Miller, 2006; Miller, Le Breton-Miller, & Scholnick, 2008). As a consequence of this

strong attachment, the preservation of family control over the business and the protection of

the firm’s reputation with stakeholders represent important drivers of business decisions. Also

from an economic point of view, the long-term nature of the family investment suggests that

external stakeholders such as customers, suppliers and lenders are likely to deal with the

same group of shareholders, managers and practices for long time. This makes the family

firm’s reputation and social capital critical assets to protect with long-lasting economic

effects on the business (Anderson, Mansi, & Reeb, 2003; Wang, 2006).

A related noneconomic factor that drives family firms’ management is the desire of the family

to preserve the business in the long term, with the final goal of passing it on to next generations

(Anderson & Reeb, 2003; Anderson et al., 2003; Berrone, Cruz, & Gomez-Mejia, 2012; Gomez-

Mejia et al., 2011; Miller & Le Breton-Miller, 2006; Miller et al., 2008). Therefore, family firms’

owners are more likely to focus on firm survival rather than on mere wealth maximisation, with

direct consequences in terms of strategies and decision-making process. In short, noneconomic

factors play a major role in shaping the family’s utility function.

Another primary feature of family firms relates to the owner–managers relationship (e.g.

Anderson & Reeb, 2003). Family businesses are typically characterised by a close relationship

between managers and family (Miller & Le Breton-Miller, 2006; Prencipe, Markarian, &

Pozza, 2008). Firm managers are often family members, or hold close personal relationships

with the family. A relevant consequence of this trait is that for managers of family firms

typical motivations related to the executive job market are less important (Prencipe et al.,

2008). Managers aim to keep their position for the long term, and what counts for success is

their loyalty and ability to preserve the trust of the family rather than just generating financial

results (Miller & Le Breton-Miller, 2006). Furthermore, family members are often directly

involved in the firm’s activities, and consequently typically have superior knowledge of the

business and the ability to closely interact and monitor managers even when the latter do not

belong to the family (e.g. Anderson & Reeb, 2003).

Different theoretical frameworks tend to give prominence to one or more of the above-men-

tioned features. Prior studies of family firms in the areas of management and business have

employed mainly four theoretical frameworks: agency theory (Morck & Yeung, 2003;

Schulze, Lubatkin, & Dino, 2003; Schulze, Lubatkin, Dino, & Buchholz, 2001), stewardship

theory (Miller & Le Breton-Miller, 2006; Miller et al., 2008), the resource-based view (RBV)

of the firm (Habbershon & Williams, 1999; Habbershon, Williams, & MacMillan, 2003;

Sirmon & Hitt, 2003), and socioemotional wealth (SEW) theory (Gomez-Mejia et al., 2011;

Gomez-Mejia, Haynes, Nunez-Nickel, Jacobson, & Moyano-Fuentes, 2007).

Accounting Research in Family Firms 363

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Agency theory views the firm as a bundle of contracts, and focuses on potential conflicts of

interest arising from asymmetry of information between two contractual parties, i.e. the principal

and the agent (Jensen & Meckling, 1976; Ross, 1973). Agents are considered to be opportunistic

wealth-maximising actors, which gives rise to problems such as moral hazard and adverse selec-

tion. Agency costs arise as a consequence of such opportunistic behaviours, or as a consequence

of the actions taken to mitigate or reduce these behaviours.

One of the central agency relationships that creates agency problems is the conflict of interests

between owners and managers. Managers are seen as agents of the owners, and the separation

between ownership and control has long been considered the main agency relationship in the

firm (Fama & Jensen, 1983b). This type of conflict has been dubbed in the literature as the

‘Type I’ agency problem (Villalonga & Amit, 2006). It is argued, however, that when managers

are also owners of the firm, Type I agency issues are minimised, as personal ownership contrib-

utes to aligning managers’ interests with those of non-manager owners (Ang, Cole, & Lin, 2000;

Fama & Jensen, 1983a, 1983b; Jensen & Meckling, 1976; Schulze, Lubatkin, & Dino, 2002;

Schulze et al., 2001). As many family firms are characterised by the presence of family

members as corporate executives and by a greater awareness of the family of managers’

actions, it is generally argued that these firms are exposed to lower Type I agency costs and

require comparatively less investment in monitoring and control mechanisms (Chrisman,

Chua, & Litz, 2004; Daily & Dollinger, 1992; Gomez-Mejia, Nunez-Nickel, & Gutierrez,

2001; Jensen & Meckling, 1976). This phenomenon is referred to as the ‘alignment effect’

(e.g. Ali, Chen, & Radhakrishnan, 2007; Wang, 2006). However, the reduced Type I agency pro-

blems in family firms may give rise to a different agency problem, i.e. the conflict between con-

trolling family owners and other owners. Family executives may potentially use their positions

and superior information to exploit less influential and less well informed owners. This type of

agency issue is dubbed as the ‘Type II’ agency problem (Villalonga & Amit, 2006) or as the

‘principal–principal’ agency problem (Morck, Wolfenzon, & Yeung, 2005). Central in this

agency problem is that dominant family members – who are at the same time owners and man-

agers – might take advantage of their position to serve personal interests to the detriment of

other owners (Schulze et al., 2002; Schulze et al., 2001), for example through behaviours as

shirking or free-riding. The Type II agency problem gives rise to the so-called entrenchment

effect (e.g. Ali et al., 2007; Wang, 2006).

In short, among the various idiosyncratic features of family firms, the agency framework

focuses on the contractual relationship of the controlling family with managers and with other

shareholders, paying particular attention to the risk of opportunistic behaviours. According to

this framework, a typical family firm is characterised by a less relevant owner–manager

agency problem, but a potentially more relevant owner–owner agency issue, given the powerful

position of controlling family executives vs. minority non-influential owners, who may be either

members of the same family or outsiders. Risk aversion, altruism towards offspring and

entrenchment in key positions have often been seen as typical limiting family practices

within an agency perspective (e.g. Beatty & Zajac, 1994; Bertrand & Schoar, 2006; Claessens,

Djankov, Fan, & Lang, 2002; Kahneman & Tversky, 1986; Lubatkin, Durand, & Ling, 2007;

Schulze et al., 2003; Schulze et al., 2001; Volpin, 2002). A limitation of the agency framework

is however that it narrows the focus to only agency relationships in the family business, while

ignoring other relevant features as outlined above.

An alternative framework for the analysis of family firms is provided by stewardship theory

(Miller & Le Breton-Miller, 2006; Miller et al., 2008). The expression ‘stewardship’ implies

human caring, generosity, loyalty, and responsible devotion, usually towards a social group or

institution. Based on sociology and psychology foundations, stewardship theory substitutes

the assumption of opportunistic behaviours by agents, and suggests that agents (referred to as


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‘stewards’) are motivated by goals other than sole private economic interest, and often act for the

benefit of the entire organisation (Davis, Schoorman, & Donaldson, 1997; Donaldson, 1990;

Donaldson & Davis, 1991). In other words, stewards are motivated by higher-level needs, as

they feel that they are part of the organisation and act for the collective good of its stakeholders.

Stewards’ actions are driven by the fact that the utility derived from a self-oriented attitude is

dominated by the utility generated by pro-organisation behaviour. This leads to a natural align-

ment of their interests with those of other principals.

Stewardship theory applies particularly well to family firms. Indeed, stewardship arises

among parties in which the relationships are stable, where there is a significant interdependence

and interaction, and where people share a similar social network (Bourdieu, 1986; Nahapiet &

Ghoshal, 1998; Putnam, 2000). These conditions are typical of family firms. Also, family execu-

tives tend to be strongly attached to and to identify with the family firm, and behave with loyalty

towards it. The firm is considered to be a legacy of the family, something to be proud of and to be

preserved for future generations. Family managers are therefore strongly motivated to work for

the long-term survival of the firm (Miller & Le Breton-Miller, 2005; Miller et al., 2008). Miller

et al. (2008) identify three main dimensions of stewardship in the context of family firms: ‘con-

tinuity’, ‘community’ and ‘connection’. ‘Continuity’ refers to the aspiration of the family to

ensure the longevity of the firm, to the benefit of family members. ‘Community’ refers to the

creation of a collective corporate culture, where staff members are highly competent and motiv-

ated, while ‘connection’ refers to the strong relationships of the family with external stake-

holders who might assist in sustaining the business in tough times. However, when

stewardship is established not towards the entire business but towards the family itself, the bor-

derline between the agency and stewardship perspectives becomes less clear (Bertrand &

Schoar, 2006; Bloom & Van Reenen, 2007; Schulze et al., 2001). Altruism towards family

members who do not deserve their positions or their rewards may be detrimental to the organ-

isation, as stated by the agency perspective (e.g. Karra, Tracey, & Phillips, 2006).

Evidently, among the idiosyncratic features of family firms highlighted above, the steward-

ship perspective overcomes the assumption of opportunistic behaviour and gives prominence

to noneconomic factors that drive families’ decisions and behaviours, such as the identification

and the attachment of family members to the business, their care for reputation and stakeholders

and the will to preserve the business for future generations. In the owner–manager relationship,

the accent is put on the alignment of interests based on loyalty and altruism of family members

towards the organisation and its stakeholders, rather than on the risk of individual opportunistic

behaviour.

Both agency and stewardship theory find empirical support in prior research (Chrisman et al.,

2007; Nicholson & Kiel, 2007). In the light of this and in the attempt to reconcile agency and

stewardship perspectives, Le Breton-Miller, Miller, and Lester (2011) suggest that both views

can be usefully applied in family firms, but under different circumstances. Particularly, they

argue that this depends on the degree to which the firm and its executives are embedded

within the family, and thus their identification with its interests. Agency behaviour will be

more common and prevalent compared to stewardship behaviour when there is a greater

number of family directors, officers, generations, and votes, and when more executives are sus-

ceptible to family influence. This suggestion is in line with the idea that a combination of differ-

ent frameworks may prove useful and effective to better understand family firms.

A third theoretical framework applied in the study of family firms is the RBV of the firm. The

RBV is based on the assumption that returns achieved by firms are largely attributable to their

resources (Penrose, 1959). The main argument is that firms are able to sustain their competitive

advantage when they are able to develop valuable and rare resources which cannot be easily imi-

tated or substituted by competitors (Barney, 1991; Teece, Pisano, & Shuen, 1997). Therefore, the


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RBV may be utilised to identify critical resources that distinguish family from non-family firms

(Chua, Chrisman, & Steier, 2003). In this respect, for example, Habbershon and Williams (1999)

and Habbershon et al. (2003) argue that the intersection of family and business (i.e. the firm’s

‘familiness’), if managed purposefully and efficiently, may lead to hard-to-duplicate capabilities

that make family firms particularly suited for survival and growth. Along similar lines, Sirmon

and Hitt (2003) identify a list of resources of family firms – human capital, patient capital, social

capital, survivability capital, and the governance structure – that make them different from non-

family firms.

Among the idiosyncratic features of family firms, the RBV focuses on the interaction of the

family (as a whole or of its individual members) and the business systems, trying to identify the

unique bundle of resources that arise from this integration and their potential effects on perform-

ance. Both economic and noneconomic factors are taken into consideration in identifying the

strategic resources that make family firms distinctive and potentially able to succeed in their

competitive strategy.

Although the RBV has the potential to provide valuable insights into how resource configur-

ations of family firms differ from those of non-family firms and how these may lead to competi-

tive advantages, empirical evidence to date is limited.

More recently, another theoretical framework has emerged in the field of family business

research: the SEW. In contrast to agency theory, stewardship theory and the RBV, which in a

way were adopted from other disciplines such as management and economics, the SEW

theory was developed from within the field of family business research, as an extension of be-

havioural agency theory (Cennamo, Berrone, Cruz, & Gomez-Mejia, 2012; Gomez-Mejia et al.,

2011; Gomez-Mejia et al., 2007; Gomez-Mejia, Makri, & Kintana, 2010). According to the SEW

theory, family firms are motivated by, and committed to, the preservation of their SEW. SEW

refers to non-financial affect-related values including, for example, fulfilment of the needs for

belonging, affect, and intimacy; identification of the family with the firm; desire to exercise auth-

ority and to retain influence and control within the firm; continuation of family values through

the firm; preservation of family firm social capital and the family dynasty; discharge of familial

obligations; and the capacity to act altruistically towards family members using firm resources

(Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010; Gomez-Mejia et al., 2007; Gomez-

Mejia et al., 2010). Berrone et al. (2012) break down the SEW into five dimensions, namely:

family control and influence, identification with the firm, dynastic succession, emotional attach-

ment and social ties.2

Consistent with behavioural agency theory, the SEW model relies on the assumption that the

decisions of principals in family firms are motivated by the desire to preserve accumulated

endowment in the firm, which in the case of family firms is represented by SEW (Gomez-

Mejia, Welbourne, & Wiseman, 2000; Wiseman & Gomez-Mejia, 1998). Therefore, it is not

necessarily an economic consideration that drives principals’ decisions, but rather the preser-

vation of the socioemotional endowment, even when it contrasts with typical economic and/

or financial goals. Family principals are highly loss-averse to socioemotional endowment,

rather than risk averse. This contrasts with agency theory arguments, which put risk aversion

at the centre of decision-making. Similarly to the stewardship theory, the SEW theory allows

2Berrone et al. (2012, pp. 262–264) define the five components of the SEW theory as follows. Family control and influ-

ence refers to the control and influence of family members over strategic decisions. Identification with the firm refers to

the close identification of the family with the business. Social ties refer to family firms’ social relationships. Emotional

attachment refers to the role of emotions in the family business context. Dynastic succession refers to the intention of

handing the business down to future generations.


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for collaborative behaviours; however it also allows for opportunistic and selfish behaviours,

which brings the theory closer to the agency than to the stewardship perspective.

Clearly, among the idiosyncratic features of family firms, the SEW gives prominence and

elaborates on noneconomic factors that shape family firms’ management, putting the preser-

vation of SEW at the centre of family firms’ goals and behaviours. In recent years, the

number of studies using SEW theory has been growing, generally providing support to the val-

idity of the model in the field of family firms (Cennamo et al., 2012).

The question of which is the most suitable theoretical framework for research in family firms is

rather complex. Given the multifaceted issues and complexities that characterise family firms (and

which may lead to both positive and negative effects on the firm and its stakeholders), it is probably

through a combination of different frameworks that researchers might find a more effective way to

test their research questions. Indeed, a single paradigm that focuses on one or another trait, or gives

prominence only to the positive or the negative aspect of the family dimension, may be unable to

capture in full the essence and behaviour of family firms. This holds true particularly when the

empirical evidence on such questions provides unclear or mixed results, which is a common

case in family firm studies.

The theoretical challenge highlighted above emphasises the importance of the selection of a

suitable theoretical framework to provide the best ‘fit’ with the study’s research question, and

particularly with the family firm characteristics that are expected to be of major influence or

importance.

3. The Empirical Challenges: Defining Family Firms

Once a position has been taken regarding the theoretical framework(s) to apply, scholars who

intend to research family firms face another challenge: how to operationally define a ‘family

firm’. The debate surrounding an appropriate definition of the family firm has been going on

for a long time, since the very first article published in the first issue of the Family Business

Review (Lansberg, 1988). Various definitions have been proposed by prior studies, causing com-

parability between them to pose a serious challenge. A study conducted on behalf of the Euro-

pean Commission (KMU Forschung Austria, 2008) mapped the definition of ‘family business’ in

33 countries, looking at policy discussions, legal regulations as well as academic research. A

total of 90 different definitions were identified, which include combinations of elements such

as family ownership, the role of the family in management/strategic control, the active involve-

ment of family members in the enterprise’s everyday activities, intergenerational considerations,

or even a mere perception by respondents. Each of these elements, in turn, has been operationa-

lised in several different ways.3 Obviously, this plethora of definitions and measurements of

family firms signals the difficulty in reaching a common operational definition.

Over the past few years, the focus of the definition problem has shifted from dichotomous

definitions aimed at separating family from non-family firms to more articulated definitions

that allow to distinguish between various types of family firms. A general agreement has

emerged among management scholars that dichotomous definitions should be avoided

3For example, ownership has been operationalised in alternative ways, such as the family owns the majority of voting

shares (.50%), the family owns at least 10–25% (for public companies), or the family is the largest owner. Similarly

strategic/managerial control has been operationalised using ‘soft’ criteria (e.g. family relations affect the assignment of

the management, a significant proportion of the company’s senior management belongs to the family, the most important

decisions are made by the family, or at least two generations have had control over the enterprise) or ‘hard’ criteria (e.g.

the CEO belongs to the family; one, or at least one family member is involved in the operating management; at least two

or three board members stem from the family, or the majority of the management team comes from the family).


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(e.g. Deephouse & Jaskiewicz, 2013). Although a dichotomous approach is still common in

empirical studies, especially outside the management literature, a growing number of scholars

have started to recognise that family firms are quite heterogeneous on various aspects (e.g. Chris-

man, Chua, Pearson, & Barnett, 2012; Chua, Chrisman, & Sharms, 1999) and have begun

searching for a more adequate approach for empirical measurement.

Several authors have sought to identify the elements that drive family involvement that can

possibly be useful in a definition of the family firm. For example, in the attempt to quantify

the contribution of family firms to the US economy, Shanker and Astrachan (1996) and

Shanker and Astrachan (2003) suggest a range, from a broad definition where there is limited

family involvement (the family controls the strategic direction of the business and participates

somehow in the business), to a middle definition characterised by some level of family involve-

ment (the founder/descendant runs the company and it is intended that the company will remain

in the family), up to a narrow definition where family involvement is at a high level (multiple

generations are involved in the company and more than one family member has management

responsibility). Another attempt has been made by Westhead and Cowling (1998) who, based

on a literature review, identified several elements that could appear in a family business defi-

nition, such as: whether the majority of ordinary voting shares in the company are owned by

members of the largest family group related by blood or marriage; whether the management

team in the company is comprised primarily of members drawn from the single dominant

family group that owns the business; whether the company has experienced an intergenerational

ownership transition to a second or later generation of family members drawn from a single

dominant family group owning the business; and whether the chief executive, managing director

or chairman perceive the company to be a family business.

Most definitions, like those mentioned above, stress the various levels of involvement of the

family in the company. This is known as the ‘involvement approach’, which focuses on the

family’s power to direct goals, strategies and actions (Deephouse & Jaskiewicz, 2013;

Gomez-Mejia et al., 2011). Typical proxies for family involvement are the level of family own-

ership, family involvement in management or, more generally, family involvement in the gov-

ernance of the company.

A concern about the involvement approach is that it does not capture goal differences among

family firms. Therefore, a second approach has emerged: the ‘essence approach’ (e.g. Chrisman

et al., 2012; Chua et al., 1999; Deephouse & Jaskiewicz, 2013). This approach focuses on the

‘essence’ of family firms, which is explained as the role of the family in shaping the identity

of the firm. The essence approach recognises that family firms – even with a similar level of

involvement – might differ in terms of family members’ identification with the firm, and there-

fore in terms of vision, culture, values, goals and behaviours. The essence approach considers

family involvement as a necessary condition, but as not sufficient to distinguish family

businesses from non-family businesses, or various levels of the family dimension among

family firms.

Both the involvement and the essence approaches are consistent with the idea that there is a

sort of continuum in the family dimension of a firm. In a well-known contribution, Astrachan,

Klein, and Smyrnios (2002) suggest measuring the degree of family influence employing a mul-

tidimensional scale that incorporates both the involvement and the essence approaches. They

propose the ‘Family Power Experience Culture Scale’, which enables measurement of the

degree of family influence on a continuous scale by combining three main dimensions:

power, experience and culture. A score is calculated for each dimension, and a global

measure for family influence is computed as a combination of the different scores.

Although the idea of a continuum in the level of the family dimension is sharable on theor-

etical grounds, understandably, empiricists who use large archival databases tend to rely on


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reductionist proxies (e.g. family ownership, composition of board of directors, family members

in top management) to measure the degree of family influence. Different studies still use a

variety of definitions, based on a combination of the various involvement proxies and, in

some cases, they set thresholds to separate family from non-family firms.

The fact that there are various operational definitions in empirical research makes comparabil-

ity of various studies complicated, if not impossible. This appears to be to some extent a limit-

ation that researchers of family firms have to accept. However, one may also wonder whether it

is indeed necessary to have a standard operational definition of a family firm. Use of different

definitions across studies, with the choice depending on how well the definition fits a study’s

research questions and setting, may represent a useful way to capture various facets of family

firms and to investigate their effects on actions and results.

4. Accounting and Reporting in Family Firms: The State of the Art

Accounting researchers who intend to study family firms face similar challenges to the one

described in the previous sections. In particular, the choice of a proper theoretical framework

to analyse determinants and effects of accounting information in family firms, and the definition

of family firms are issues that characterise the accounting field as well. In addition, questions

such as the choice of a proper research method (i.e. theoretical/conceptual or empirical) and

the collection of data are generally faced by accounting researchers.

Through a description of the ‘state of the art’ of research on accounting and reporting in

family firms, in this section we highlight how the above-mentioned issues have been

addressed by accounting scholars. For this purpose, we discuss here the results of a broad

literature review. We confine our review to articles published since 1980, and restrict our

selection to papers that explicitly relate accounting and reporting issues to family firms.4

The themes included in our review broadly cover the domains of financial accounting and

reporting, management accounting and control, and auditing. Our search includes also find-

ings of prior reviews as far as they explicitly refer to family firms (e.g. Salvato &

Moores, 2010), and papers that have been published after these reviews.5

Our literature review resulted in a set of 37 published papers that explicitly examine account-

ing and reporting issues in family firms.6 Below, we report the result of our search in which we

focus in particular on the following aspects:

. the key issues addressed;

. the theoretical framework employed;

. the operational definition of family firm adopted;

4Because of this reason, unless explicitly linked to family ownership, studies on ownership concentration and/or insider

ownership were disregarded in our search of the literature. We take a broad perspective on what constitutes accounting

practices. For instance, while not explicitly referring to management accounting or control, a study on strategic planning

(e.g. Blumentritt, 2006) is considered a management accounting paper. We disregard accounting papers that are located

empirically in a family-firm setting, but do not explicitly examine the implications of that setting (e.g. Anderson, Dekker,

& Sedatole, 2010). We also omit from our review the limited literature on tax behaviour in family firms (e.g. Chen, Chen,

Cheng, & Shevlin, 2010).5Our selection criteria result in a more limited set of publications than reported in Salvato and Moores (2010). Their

review paper also includes studies on topics such as ownership concentration, inside ownership, privately held firms,

in which there is no clear analysis or evidence of family issues.6We exclude from the selection Hutton (2007), which provides a discussion of Ali et al. (2007) and does not constitute a

study in itself.


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. the research method (i.e. theoretical/conceptual or empirical) applied, and the type/source

of data used.

Detailed results of the search are reported in Table 1. In addition, the table includes a short

summary statement of the key findings of each study.

4.1. Key Issues in Published Accounting Research on Family Firms

It is evident that the majority of studies (22 papers, 59% of the total) examine financial account-

ing and reporting issues. Eight papers (22%) examine management accounting and control ques-

tions, and six (16%) relate to auditing questions in a family firm context. Financial accounting

and reporting papers are predominantly confined to the issues of earnings quality, earnings man-

agement, voluntary disclosures, and the impact of corporate governance choices/board compo-

sition on reporting quality. Management accounting and control studies seem to be quite diverse

in their research questions, and broadly cover issues of management accounting and control

choices and practices in family firms, drivers of management accounting choices in family

firms, and the role of management accounting and control in changes and transitions over

time. The six identified audit papers address the demand for auditing by family firms, the associ-

ation between family firms and audit quality, timing and effort, auditor choice, and differences

between family and non-family firms regarding auditor resignation.

Overall, it appears that family-firm issues are still relatively new to the fields of management

accounting and auditing. More research efforts in these areas may help improve our understand-

ing of how the antecedents and consequences of management accounting and auditing choices

identified in prior research apply in companies characterised by family influence.

4.2. Theoretical Frameworks Employed in Accounting Research on Family Firms

Regarding the theoretical framework, we classify the 37 surveyed papers by the predominant

theory employed to develop the hypotheses and/or to explain empirical observations. This classi-

fication clearly indicates that agency theory is the dominant paradigm. Indeed, 21 papers (57% of

the total) are based primarily on agency theory. These research studies rely extensively on one of

or both the Type I and Type II agency problems discussed in Section 2. In particular, these

papers aim at exploring the implications of the closer alignment of interests between owners

and managers (Type I agency problem) and of the entrenchment effect deriving from the diver-

gence of interests between family shareholders and minority shareholders (Type II agency

problem) on issues such as earnings quality, earnings management, voluntary disclosure, gov-

ernance choices/board composition and internal control systems, demand for auditing, audit

quality, and auditor choice and resignation. This dominant reliance on agency theory fits with

the broader use of the agency paradigm in accounting research.

More recently, accounting scholars have begun to embrace new perspectives, such as the SEW

theory, focusing on noneconomic factors that drive family firms’ decisions and behaviours. In

particular, we identified four papers that argue that accounting choices are primarily based on

the preservation of different aspects of the family’s SEW (Achleitner et al., 2014; Gomez-

Mejia et al., 2014; Pazzaglia et al., 2013; Stockmans et al., 2010). In particular, Gomez-Mejia

et al. (2014) contend that, in family firms, financial reporting decisions such as earnings manage-

ment and voluntary disclosure policies are driven by the preservation of the different aspects of

the family SEW. While the number of studies relying on SEW theory is still limited, the empiri-

cal evidence provides support that SEW is a potential driver of accounting choices, supporting

the validity of the theory and its potential for future research.


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Table 1. Published research on accounting and reporting issues in family firms

Authors Journala Fieldb TopicMain theoretical

framework Scope Definition of family firms Main findings

Achleitner, Fichtl,Kaserer, andSiciliano (2014)

EAR FA Earningsmanagement

SEW Familyvs.non-family

% ownership or familymembers onmanagement orsupervisory board

Family firms engage less in real earningsmanagement, more in earnings-decreasingaccounting earnings management, and treatthese as substitute tools for earningsmanagement

Ali et al. (2007) JAE FA Disclosure Agency Familyvs.non-family

% ownership or familymembers on the board/top management

Family firms report better quality earnings,are more likely to warn for bad news, andmake fewer disclosures about corporategovernance practices

Blumentritt (2006) FBR MA Planning practices Family Externally defined Family firms with an advisory board engagemore in strategic planning and successionplanning

Carey and Guest(2000)

JAAF AUD Audit timing Agency Family Family majority on board The optimal timing for financial audits infamily-controlled firms is determined bytrading off audit costs and expected losses

Carey, Simnett, andTanewski (2000)

AJPT AUD Demand forauditing

Agency Family Externally defined Internal audits are often outsourced, usedmore than external audits, but agencyproxies and firm debt better explaindemand for external audits. Voluntaryinternal and external audits are seen assubstitutes

Cascino, Pugliese,Mussolino, andSansone (2010)

FBR FA Accounting quality Agency Familyvs.non-family

% ownership and familymembers on the board/top management

Family firms convey financial information ofhigher quality and differ in determinants ofaccounting quality

Chau and Gray(2010)

JIAAT FA Disclosure Agency Familyvs.non-family

% ownership Voluntary disclosure is greater (lesser) forfirms with higher (lower) familyshareholding, and with the appointment ofan independent chairman, which mitigatesthe influence of family ownership

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Table 1. Continued



Chen and Jaggi(2000)

JAPP FA Disclosure Agency Familyvs.non-family

% ownership and familymembers on the board

Family-controlled firms show a weakerpositive association between thecomprehensiveness of financial disclosuresand the percentage of independent non-executive directors on corporate boards

Chen et al. (2008) JAR FA Disclosure Agency Familyvs.non-family


Family firms provide fewer earnings forecastsand conference calls, but more earningswarnings

Chen et al. (2014) EAR FA Conservatism Agency Familyvs.non-family


Conservatism increases with non-CEO familyownership, but not in family firms withfounders serving as CEOs

Filbeck and Lee(2000)

FBR MA Financialmanagementtechniques

Family Externally defined More established, larger family firms with anoutside board of directors or a non-familymember in financial decision-making rolesuse more sophisticated financialmanagement techniques

Giovannoni,Maraghini, andRiccaboni (2011)

FBR MA Succession Life cycle Family Case-related Management accounting can affect thetransfer of knowledge across generationsand between owner family andmanagement team

Gomez-Mejia,Cruz, andImperatore(2014)c

EAR FA EarningsmanagementDisclosure

SEW Financial reporting decisions aredifferentially affected by differentdimensions of families’ SEW preservationrelating to Family Control and Influence,and Family Identification

Hiebl, Feldbauer-Durstmuller, andDuller (2013)

JAOC MA Transition Man. acc.change

framework

Familyvs.non-family

% ownership and familymembers on supervisoryor management board

Controlling family influence is negativelycorrelated with the institutionalisation andintensification of management accountingin medium-sized firms, but not in largefirms

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Hope, Langli, andThomas (2012)

AOS AUD Audit effortAuditor choice

Agency Familyvs.non-family

% ownership and familymembers on the board/top management

Audit effort, as proxied by fees and choice ofhigh-quality (BIG4) auditor, are affectedby family relationships

Jaggi and Leung(2007)

JIAAT FA Earningsmanagement


Family members on board Audit committees constrain earningsmanagement, but are less effective whenfamily members are on corporate boards

Jaggi, Leung, andGul (2009)

JAPP FA Earningsmanagement


% ownership and familymembers on the board

The effectiveness in monitoring earningsmanagement of independent corporateboards is moderated in family-controlledfirms

Jiraporn and DaDalt(2009)

AEL FA Earningsmanagement


% ownership or familymembers on the board

Family firms are less likely to manageearnings

Khalil, Cohen, andTrompeter(2011)

AH AUD Auditorresignation


% ownership or familymember on the board/topmanagement

Family firms have lower likelihood of auditorresignation, and abnormal returnsfollowing auditor resignations are higher

Moores and Mula(2000)

FBR MA Managementcontrol

Life cycle, Org.control

Family Externally defined Family firms use different controlmechanisms at each stage of their life cycle

Niskanen,Karjalainen, andNiskanen (2010)

FBR AUD Audit quality Agency Familyvs.non-family

% ownership or familymembers on the board

Family firms are less likely to use Big Fourauditors, and an increase in familyownership decreases likelihood of a BigFour audit

Pazzaglia, Mengoli,and Sapienza(2013)

FBR FA Earnings quality SEW Familyfirms

% ownership Firms acquired by families through markettransactions display lower earnings qualitythan firms owned by families that createdthem

Prencipe and Bar-Yosef (2011)

JAAF FA Earningsmanagement


% ownership or familycontrol on strategicdecisions

The percentage of independent directors onthe board has a weaker effect on earningsmanagement in family-controlled firms

(Continued)

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Table 1. Continued



Prencipe et al.(2008)

FBR FA Earningsmanagement

Agency andstewardship

Familyvs.non-family


Family firms show weaker negativeassociations between R&D costcapitalisation and the level of and changein profitability, but not with leverage

Prencipe, Bar-Yosef, Mazzola,and Pozza (2011)

CGIR FA Earningsmanagement

Agency andstewardship

Familyvs.non-family


Income smoothing is less likely amongfamily-controlled firms, and among thesefirms, it is less likely when CEO and BoardChairman are members of the controllingfamily

Salvato and Moores(2010)c

FBR Review

Shujun, Baozhi, andZili (2011)

JAAF FA EarningsmanagementConservatism


% ownership Chinese-listed family firms have lessinformative accounting earnings, employless conservative accounting practices, andhave higher discretionary accruals

Speckbacher andWentges (2012)

MAR MA Managementcontrol choices

RBV,contingency,stewardship

Familyvs.non-family

% ownership and familymember on the board/topmanagement

Founding family involvement in topmanagement team is associated with lessfrequent use of performance measures instrategic target setting and incentivepractices

Stergiou, Ashraf,and Uddin (2013)

CPA MA Man.acc. controlchange

Critical realism Family Case-related Changes in management control practices areinfluenced by different interactingstructural conditions as mediated throughhuman agency

Stockmans,Lyabert, andVoordeckers(2010)

FBR FA Earningsmanagement

SEW Family Not quoted, perceived asFF, % ownership, andsize constraint

When firm performance is poor, first-generation and founder-led private familyfirms engage more in upward earningsmanagement

Tong (2008) AA FA Earningsmanagement



Family firms have higher quality reporting,reflected by lower absolute discretionaryaccruals, fewer small positive earningssurprises, more informative earnings andless restatements

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Trotman andTrotman (2010)c

FBR AUD Review

Upton, Teal, andFelan (2001)

JSBM MA Planning practices Strategictypologies

Family % ownership and familymember on the boardand intent to pass thefirm to next generation

The majority of family firms surveyedprepare written formal plans, tie planningto actual performance and adjustmanagement compensation accordingly

Wan Nordin (2009) IJA FA Disclosure Agency Familyvs.non-family

Family members on theboard

Family firms are more inclined to disclose allrequired items for the primary basis ofsegment reporting

Wang (2006) JAR FA Earnings quality Agency Familyvs.non-family


Family firms have higher earnings quality,reflected by lower abnormal accruals, moreinformative earnings, and less persistenceof transitory loss components

Weiss (2014) EAR FA Internal controlsdisclosure


Family members on theboard/top management

Family-owned firms report less materialweaknesses in internal controls, have lowerearnings quality if they do, which investorsfind to be more serious in their potential tolessen future performance

Yang (2010) FBR FA Earningsmanagement


% ownership Earnings management increases with thelevel of insider ownership in family-controlled firms, and decreases withpresence of family CEO

aFull journal titles are provided in the reference list.bAUD, auditing; FA, financial accounting; MA, management accounting.cAll papers are empirical except for Gomez-Mejia et al. (2014), Salvato and Moores (2010) and Trotman and Trotman (2010), which are conceptual/review papers.

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In addition to these more commonly used theoretical frameworks in family firm research, the

literature also indicates the occasional adoption of other theoretical perspectives in the family

firm setting. For instance, organisational life-cycle theory has been employed to study questions

of dynamics, transition and generational change within family firms (e.g. Miller, Steier, & La

Breton-Miller, 2003), and has been adopted by accounting researchers to study how life-cycle

stages, changes and transitions are associated with management accounting and control

(change) (Giovannoni et al., 2011; Hiebl et al., 2013; Moores & Mula, 2000). Similarly,

studies have applied strategic and contingency-based frameworks to the family firm setting to

identify differentiating characteristics of family firms that help to explain choices, practices

and processes, including their adoption and use of various management accounting practices

(e.g. Speckbacher & Wentges, 2012; Upton et al., 2001). While these frameworks are not

unique to the family field, these studies aim at identifying unique implications for family

firms in order to understand strategy, dynamics and the interrelations with management account-

ing over time.

Somewhat surprisingly, we find no accounting study that applies only stewardship theory as

the main theoretical framework. Similarly, we identified no accounting studies relying only on

the RBV framework, which like stewardship theory is more commonly applied in other fields

(e.g. management). However, our review highlights that some studies apply multiple theories

to explain accounting choices and practices in family firms (three studies, 8% of the total).

Two of these papers utilise combinations of agency theory and stewardship theory in the analysis

of firms’ earnings management practices (Prencipe et al., 2011; Prencipe et al., 2008). Another

paper in this group mixes RBV theory with stewardship and contingency arguments to explain

management control choices by family firms (Speckbacher & Wentges, 2012). Thus, although

the stewardship theory and the RBV are not used independently by accounting researchers, it

appears that some studies have fruitfully employed these perspectives in conjunction with

other theories.7

Overall, while our review indicates a clear preference for agency theory as a theoretical frame-

work for the study of accounting and reporting issues in family firms, this is by no means the only

theoretical basis used by accounting studies. For many research questions it seems natural to

place accounting research within an agency framework. However, the alternative frameworks

discussed may provide useful insights for the formulation of new and interesting hypotheses

on the reporting and auditing of accounting information, and on the use of accounting and

control practices by family firms. In general, our review of the literature suggests that accounting

scholars need to be selective in their application of theory to ensure that the applied framework

fits the nature of the addressed research questions. This may translate into the use of various the-

ories in the study of the same accounting phenomenon, in line with what is discussed in Section

2. Future studies might see it as an opportunity to compare theories and explicitly identify con-

vergence of and/or divergence in predictions, and to empirically test these predictions in a com-

parative manner.

Generally speaking, when considering the richness of the research field and the diversity of the

research questions to be addressed, a pluralistic view in terms of use of theory seems desirable.

4.3. Operational Definition of Family Firms

When examining which operational definitions of family firms are used in the selection of

papers, a rather fragmented view emerges, indicating that accounting research lacks consistency.

7Our review also indicates that a few papers do not refer explicitly to any theoretical framework.


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This aligns well with the lack of consistency that characterises the family business field in

general, as described in Section 2. Definitions used by accounting scholars who investigated

family firms range from ready-made classifications provided by outside institutions (e.g. Ali

et al., 2007; Blumentritt, 2006; Tong, 2008), to classifications based on family ownership

and/or the family presence on the board or in the top management of the firm (e.g. Achleitner

et al., 2014; Cascino et al., 2010; Chen, Chen, & Cheng, 2014; Jiraporn & Dadalt, 2009;

Khalil et al., 2011; Prencipe et al., 2011; Prencipe et al., 2008; Wang, 2006; Weiss, 2014), up

to more qualitative definitions that consider the perception of the top management or the inten-

tion to pass the firm to the next generation (e.g. Stockmans et al., 2010; Upton et al., 2001). A

limited number of studies simply assume the definition as given by the nature of the data (e.g.

Giovannoni et al., 2011; Stergiou et al., 2013).

Undoubtedly, the most commonly used definitions are those that follow the involvement

approach, mainly based on the proportion of stock held by the family and/or the family presence

on the board of directors or in the top management of the firm. It appears that the general pre-

ference in accounting studies for the involvement approach fits well with the agency theory –

which focuses on the separation between owners and managers or dominant and minority

owners and which is the dominant theoretical approach – and with the empirical nature of

most accounting research. However, different criteria are used to determine whether or not

firms are subject to a significant degree of family influence, which makes comparability

between studies problematic. For example, with respect to the thresholds of stock ownership,

large differences are observed among studies, with institutional differences across countries

(e.g. in stock ownership dispersion and investor protection) strongly affecting the level of

thresholds employed. For example, while holding 5% or more of the voting shares in a US-

listed company is considered sufficient to indicate the presence of a dominant shareholder

and thus, potentially, a family firm – in a European country like Italy – such a threshold is

too low, given that the average level of ownership of the major shareholder among non-finan-

cial-listed firms is about 58% (Prencipe et al., 2011). Using a too low threshold would simply

result in the classification of all Italian-listed firms as family firms. Similarly, variation is

evident in the number of family members on the board of directors that are required to satisfy

the definition of family influence. In order to mitigate the concern that the results achieved

might depend on the criteria employed, several studies make use of alternative criteria to deter-

mine family influence to test the robustness of their findings.

While the choice of a specific definition of family firm may be legitimate in a given context, as

in other fields of family business research, this lack of comparability of research findings com-

plicates the aggregation of findings and the assessment of the stock of knowledge about account-

ing and reporting in family firms. Although the possibility of using different definitions may

represent an opportunity to capture various facets of family firms, our belief is that researchers

should properly clarify and justify (both from a conceptual and an empirical perspective) the

adopted definition in their work, at the same time making readers aware of the extent to

which the study’s conclusions can be generalised to other settings.

An additional aspect that emerges from our literature review is that most prior accounting

studies have relied on the simplistic dichotomous distinction between family and non-

family firms rather than on the differences among family firms. From this point of view,

accounting research on family firms is still dawning. Much still can and needs to be

done to investigate accounting and reporting issues in relation to different levels of the

family dimension. Such a change might take place in conjunction with a progressive

shift from the dominant agency model to the broader adoption of the stewardship or

SEW frameworks, as discussed above.


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4.4. Research Methods and Type of Data Employed

With regard to the methods employed by the selected studies, it is evident that contributions on

accounting and reporting in family firms are overwhelmingly empirical. With the exception of a

few conceptual manuscripts (Gomez-Mejia et al., 2014; Salvato & Moores, 2010; Trotman &

Trotman, 2010), all other papers offer empirical analyses of financial reporting, management

accounting and auditing issues in family firms, with some variations in terms of data employed

in the different subfields.

Empirical researchers in accounting – like all scholars who intend to study family firms –

face a challenge related to data availability. Indeed, data about family businesses are often pro-

prietary, due to the private nature of such firms. The problem is, to some extent, less relevant

when listed family firms are analysed, in which case at least financial statements and general

corporate governance data are publicly available. As a consequence, most financial reporting

studies are focused on listed family firms. Such studies are based on publicly available archival

data, which cover a range of firms in various countries, of different sizes, belonging to different

industries, and across different years. To operationalise family firms, these studies generally

track family relations through textual searches (e.g. in proxies filed with the Securities and

Exchange Commission, firm history collected from the LexisNexis/Hoovers databases, and

from firm websites and other miscellaneous information sources) in order to compile infor-

mation on family ownership and board composition. A critical element in these studies, for

appropriately identifying the degree of the family dimension, is the accuracy of the identified

information on family relations which – with multiple generations by blood and marriage –

may turn out to be complicated.8 An exception to these general observations is the paper by

Stockmans et al. (2010), who use survey data to examine earnings management by Flemish

family firms.

The identified management accounting studies, in contrast, use mostly survey data and in a

few instances case study analyses. These types of data appear to fit well the nature of the research

questions addressed, which typically require information that is not publicly available, and is

difficult to collect otherwise than through primary research methods. The degree of family invol-

vement in these studies is either inferred from responses to survey questions on stock ownership

and board membership, or is determined up front in the selection of suitable survey respondents

or case study firms.

Finally, the few empirical auditing studies on family firms are mixed in their use of data, as

they employ survey data, publicly available archival data, or a mix of publicly and non-publicly

available data.

In short, two types of empirical data appear to dominate the accounting literature on family

firms. First, archival data are widely used, and most prominently in financial accounting

studies, which is not surprising given the public availability of the data that allows researchers

to track family relations, stock ownership and board positions to form proxy measures of family

involvement and influence. Second, survey data are employed in all three subfields of account-

ing, which enable researchers to obtain more directly an assessment of family influence on the

one hand, and publicly unobservable accounting choices on the other hand. While not common

yet (with the exception of Stockmans et al., 2010), mixing archival and survey data may provide

interesting insights. Such a mixing of data may allow one, for instance, to triangulate or validate

8In some archival studies, tracking is eased and threats to accuracy appear low, such as in the study of Weiss (2014)

among Israeli firms that are legally required to report family relations among all stakeholders, directors, and managers

as an integral part of the annual financial statements, and Hope et al. (2012), who obtain access to non-publicly available

data on family relations through the Norwegian National Register Office.


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measures of family dimension or accounting choices and complement variable measures that are

uniquely observed through different data collection methods.

Somewhat surprisingly, our review also indicates that other methods commonly used in

accounting research are notably absent in the family firm research field. First, there seems to

be no analytical research among the selected papers. There may be a greater demand for analyti-

cal research on a variety of questions, which may contribute to the development of new testable

predictions. Second, there is a lack of experimental research. Experiments similarly appear to

have potential to fruitfully contribute to this research area. The family/non-family dichotomy

(or variations in degree of family control and influence) could easily be imagined to form an

experimental treatment for a range of accounting-related questions. Third, while our sample

includes two case studies, qualitative research seems significantly underutilised as well,

which approach has the potential to provide in-depth understanding of accounting phenomena

within family firms. In particular, given the emerging nature of accounting research in family

firms, qualitative research may provide exploratory insights that would be difficult, if not

impossible, to obtain through the other methods discussed.

5. Summary and Directions for Future Research

Family firms play a significant role in the global economy. Being aware of this fact, over the last

two decades academia has turned its attention to the family dimension as a determinant of

business phenomena, showing a continuous increase of interest over time. While family business

research has reached an age of ‘adolescence’ as a field of study, accounting in family firms still

appears to be an emerging area of research. The number of studies on accounting and reporting

issues in family companies has been growing at an accelerated rate during the last few years, but

there is still a long way to go before a similar status is reached as in other academic disciplines.

In an attempt to accelerate and support research in the field, in this article we illustrate the state

of the art and highlight theoretical and empirical challenges that accounting scholars need to take

into account when addressing issues related to accounting and reporting in family firms.

From a theoretical point of view, studies on accounting and reporting issues in family

businesses have mostly adopted an agency theory perspective, probably due to the fact that

agency theory has traditionally been the dominant framework in accounting research. Only a

limited number of contributions have used alternative (or complementary) theories such as

the stewardship theory or the SEW theory, which give prominence to noneconomic factors

that shape family firms management. We believe that it is from the adoption of these different

perspectives – by themselves or in combination – that new and original contributions will likely

come in the future. In particular, considering the richness of the field and the diversity of research

questions to be addressed, a pluralistic view towards theory may be much desired.

From an empirical point of view, one of the main challenges that scholars face is the definition

of family firms. Accounting researchers have mainly adopted an ‘involvement approach’ to

define family firms. This approach has been translated, in most cases, into rather simplistic

classifications, aimed at distinguishing family from non-family firms. From this point of

view, accounting research on family firms is still dawning. More needs and can be done to inves-

tigate accounting and reporting issues in relation to different levels and forms of family influence

among family firms. In addition, accounting studies have been characterised – like other fields

within the management discipline – by the presence of heterogeneous operational definitions of

family firms. The variation in operational definitions used in accounting research hinders the

ability to draw inferences across studies and complicates the assessment of the stock of knowl-

edge related to accounting and reporting in family firms. On the other hand, different definitions

may represent a useful tool for capturing various facets of family firms and investigate their


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effects on accounting and reporting decisions, as long as researchers clarify and justify in their

work (both conceptually and empirically) the adopted definition.

Regarding research methods applied, the accounting literature is dominated by the use of

archival data, especially in the financial accounting subfield and when the focus of the study

is on listed family firms. However, obtaining data may be a challenge when the focus is on

private family firms. Survey data are also used relatively frequently. Surprisingly, other research

methods commonly used in accounting research are notably absent in the study of accounting in

family firms. In particular, there seems to be no analytical research in the identified literature,

which may be highly desirable as this can contribute to the development of new testable predic-

tions. Moreover, there appears to be a lack of experimental studies and qualitative research. We

believe that both these research methods have the potential to contribute to a better understand-

ing of accounting phenomena within family firms. Also, a combination of different research

approaches may be useful to provide a greater depth and breadth than any individually

applied research method could.

In terms of research topics addressed in the extant literature, while contributions on financial

accounting and reporting issues in family firms have become more common over the last decade,

the same cannot be said about management accounting and auditing. On the basis of our review,

we believe, however, that there is much potential for fruitful research in all subfields of account-

ing. While our intention is by no means to be all-inclusive, we would like to offer some possible

directions for future work for each of these areas.

In the financial accounting subfield, there is still a lack of ‘market-based research’ on family

firms. It would be of interest to examine whether family control affects the way markets value

public accounting information and, consequently, liquidity and cost of capital. For example,

does the value relevance of accounting information differ for family-controlled companies?

How does new information affect liquidity and cost of capital around earnings announcements?

Another potentially interesting line of research could relate to the manner in which markets react

to chosen (or changes in) accounting policies by family firms. For example, how do family firms

differ from non-family firms in terms of impairment of assets or cost capitalisation? And to what

extent do they differ in terms of types of disclosure? It would be interesting to examine these

questions across various countries and, more in general, to investigate how family firm reporting

and disclosure policies differ among various international institutional settings.

The management accounting subfield is also characterised by many opportunities for original

and appealing research. It would be interesting to understand whether and to what extent internal

decision-making and control systems differ between family and non-family firms. For instance,

if accounting and control design are considered to have both decision control and decision facil-

itating purposes, do the characteristics of family firms cause them to ‘balance’ these purposes

differently? The question of differences with non-family firms could be addressed in many

ways, such as how family firms deal with capital budgeting, strategic and operational

decision-making, budgeting and accountability, performance measurement and evaluation. A

related issue concerns the nature of controls, in particular the implications of the (possibly)

different types and degrees of informal/social controls within family firms. For instance, do

family firms apply formal controls in a different manner, perhaps focused on different control

problems? Do family firms use different employee selection and socialisation practices to

build and maintain informal controls? Are family firms able to develop more consistent or effec-

tive ‘packages’ of controls than non-family firms? Or do their concerns for the preservation of

SEW result in ‘suboptimal’ control choices? Are non-family owners able to affect internal

accounting and control systems in order to ensure sufficient information provision for resolving

information asymmetry with family owners and managers, and to ensure alignment of family

interests with minority shareholders? Another direction that deserves more attention is how


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management accounting and control are related to growth and change in family firms. How do

family firms support growth with management accounting and control instruments, and how

does that compare to evidence related to non-family firms? What are the impacts on management

control systems of ownership and/or management transition to a later generation?

Regarding broader issues of firm governance versus family governance, questions may be

addressed relating to how family councils and family constitutions influence decision-making

in family firms, and what the interrelations are between boards of directors and family councils.

Studies may also address issues on internal controls in family firms, such as whether the serving

of family members on the board of directors influences the effectiveness of control mechanisms

implemented, and whether they encourage or impede the implementation of internal controls.

Finally, many issues regarding incentive compensation in family firms remain open to be

addressed, such as differences in the level and structuring of compensation packages for

family CEOs or board members, whether the effects of incentive compensation differs for

family firms, and whether they differ between family versus non-family CEOs or managers.

Finally, regarding auditing research, interesting questions may include the impact of family

influence on auditing characteristics and the audit process. For example, what are the differences

between family firms and non-family firms in the demand for external and internal auditing? Are

there differences in auditor choice? Is there an impact on auditor independence and/or auditor

judgement? Is audit quality in family firms different to that in non-family firms? Do auditor prac-

tices, effort and audit fees or costs differ for family firms? Do investors and other stakeholders

respond differently to audit characteristics and judgements in family firms?

Overall, our belief is that accounting and reporting in family firms is an important and fertile

area for accounting research where much still remains to be achieved. Accounting scholars may

want to devote more attention and resources to this area to enhance our currently limited knowl-

edge of accounting and reporting in family firms, and bring this to a level that is more in line with

the dominant role of family firms in the global economy.

Acknowledgements

The authors wish to thank the Editor Salvador Carmona, an anonymous referee and the partici-

pants at the 2012 European Accounting Review Conference for useful comments and

suggestions.

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