Family Control Firms and Real Earnings Management: The Case of Korean Chaebols

We examine the relation between family control firms and real earnings management. Specifically, we see how much family control firms engage in real earnings management compared to non-family control firms. With a sample of 1290 Korean listed family control firms in KOSPI and KOSDAQ market during 2005-2015, we conduct regression analysis to compare real earnings management between family control firms and non-family control firms. We find that family control firms, on average, do not engage in income-increasing real earnings management, compared to a sample of 1283 non-family control firms. Instead, our empirical results show that family control firms, on average, conduct income-decreasing real earnings management compared to non-family control firms, consistent with the results of previous studies that show income-decreasing earnings management with accruals in Korea. we also find in further analysis that family control firms meet or beat earnings benchmarks(zero earnings and last year earnings) less than non-family control firms. We interpret these results as family control firms place more importance on long-term persistence rather than short-term performance. We contribute to accounting literature by adding evidence on the behavior of real earnings management of Chaebol firms in Korea.