Do Family Firms Issue More Readable Annual Reports? Evidence from the U.S.

58 Pages Posted: 30 Jun 2016 Last revised: 28 Nov 2020

See all articles by Qunfeng Liao

Qunfeng Liao

Oakland University-Department of Accounting and Finance

Bin Srinidhi

University of Texas at Arlington - Department of Accounting; City University of Hong Kong (CityUHK) - Department of Accountancy

Ke Wang

University of Alberta - School of Business

Date Written: November 25, 2020

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 do nonfamily firms. Higher readability could occur due to lower obfuscation or less information conveyance. By controlling for complexity and choosing readability measures linked to obfuscation, we attribute the higher readability to lower obfuscation. We argue that family insiders’ long-term horizon, incentive to maintain family reputation, and a desire to pass on the firm to family successors, drive the lower obfuscation. We conduct several tests to control endogeneity and test the robustness of our result. Specifically, we use state-level succession tax cuts as an exogenous shock to support the attribution of the higher readability to the family’s increased incentive for succession. Further, we find that the higher readability in family firms is associated with higher informativeness, and is weaker for firms with more earnings manipulation, weaker board governance, and dual-class shares.

Keywords: family firm, readability, 10-K, agency cost

JEL Classification: M41, G32

Suggested Citation

Liao, Qunfeng and Srinidhi, Bin and Wang, Ke, Do Family Firms Issue More Readable Annual Reports? Evidence from the U.S. (November 25, 2020). Available at SSRN: https://ssrn.com/abstract=2800834 or http://dx.doi.org/10.2139/ssrn.2800834

Qunfeng Liao

Oakland University-Department of Accounting and Finance ( email )

275 Varner Drive
Rochester, MI 48309-4485
United States
248-370-4289 (Phone)

Bin Srinidhi (Contact Author)

University of Texas at Arlington - Department of Accounting ( email )

Arlington, TX 76013
United States

City University of Hong Kong (CityUHK) - Department of Accountancy ( email )

83 Tat Chee Avenue
Kowloon
Hong Kong
China

Ke Wang

University of Alberta - School of Business ( email )

3-23 Business Building
Edmonton, Alberta T6G 2R6
Canada
+1 780-492-1630 (Phone)

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