How Does Regulation Affect the Relation Between Family Control and Reported Cash Flows? Comparative Evidence from India and the United States

Neerav Nagar · Kaustav Sen

27 citations0/0 files storedCorporate Governance An International Review

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Auditing, Earnings Management, Governance Corporate Finance and Governance Family Business Performance and Succession

Abstract

Abstract Manuscript Type Empirical. Research Question/Issue We conduct a two‐country study to understand (i) how family and non‐family firms engage in classification shifting to manage reported operating cash flows in each country; (ii) how this behavior varies between the two countries; and (iii) how corporate governance regulation introduced independently in each country moderates the observed behavior. Research Findings/Insights We find that family ownership has different effects on quality of cash flow reporting in the two countries. Furthermore, country‐level regulation moderates these effects differently. In particular, (i) firms in both countries engage in manipulating operating cash flows, but the evidence is stronger in the United States; (ii) family firms in India engage in more shifting than non‐family firms, but this is not observed in the United States; and (iii) family (non‐family) firms in India increase (reduce) shifting, whereas only non‐family firms in the United States increase shifting after regulation. Since non‐family firms in India raise more external capital than family firms after regulation, we infer that family firms in India reacted to this competition for capital and resorted to shifting. Theoretical/Academic Implications Most studies assume that the incentives for family firm behavior are the same in different market settings. However, factors such as efficiency of public capital markets, enforcement of corporate laws and regulations, and other institutional practices can cause differences in family firm behavior across different market settings. We investigate the behavior of family and non‐family firms in each of these markets and study how a feature of the national governance system, regulatory design, moderates this behavior. Practitioner/Policy Implications Our findings should be useful to global investors and regulators in both emerging and developed markets. The results indicate how similar regulation in the two different settings can trigger differences in the behavior of firms.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 27 citations exist upstream.

References

1997A Survey of Corporate Governance 1968FINANCIAL RATIOS, DISCRIMINANT ANALYSIS AND THE PREDICTION OF CORPORATE BANKRUPTCY 1991Earnings Management During Import Relief Investigations 2003Earnings management and investor protection: an international comparison 2003Founding‐Family Ownership and Firm Performance: Evidence from the S&P 500 2002Disentangling the Incentive and Entrenchment Effects of Large Shareholdings 2008Real and Accrual-Based Earnings Management in the Pre- and Post-Sarbanes-Oxley Periods 2000Is Group Affiliation Profitable in Emerging Markets? An Analysis of Diversified Indian Business Groups

Cited by

2021Do Indian firms engage in classification shifting to report inflated core earnings?2022Business strategy and classification shifting: Indian evidence 2016Does good corporate governance constrain cash flow manipulation? Evidence from India 2022Predictors of revenue shifting and expense shifting: Evidence from an emerging economy

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.