Earning management strategies of leveraged family and non-family controlled firms: an empirical evidence

We examine whether the choices of real and accrual base earning management of family and non-family firms are associated with the leverage? We also investigate the role of family control on the relation of leverage with real and accrual base earning management. We address this important question in the setting of Pakistan, an emerging market where family controlled businesses are dominated and where a weak external corporate governance mechanism increases the payoffs from family controlled businesses. We find that leverage is positively associated with real earning management. Further, leveraged firm is negatively associated with accrual base earning management due to higher litigation risk of accrual based earning management. Moreover, the impact of leverage on real and accrual earning management is stronger for family controlled businesses than non-family controlled businesses