FOUNDING FAMILY OWNERSHIP AND EARNINGS QUALITY IN SINGAPORE

Abstract

This study aims to examine the relationship between founding family ownership and earnings quality in Singapore. Competing predictions from different theories on the relationship between founding family ownership and earnings quality have left the matter to be an empirical question. Wang (2006) has conducted the study for S&P 500 firms; however, due to the different shareholding structures in East Asia, his results might not hold for East Asia. Due to differing business environments among East Asian countries, our study focuses only on firms in Singapore. As per Wang (2006), a firm is said to have founding family ownership if at least one member of the founding family remains active in overseeing the affairs of the firm or if at least one member of the founding family holds some of the firm’s ordinary shares. Three definitions of higher earnings quality are used: lower abnormal accruals, higher earnings informativeness, and lower persistence of transitory loss components. Overall, the results of the study are inconclusive. Firms with founding family ownership were found to have higher earnings informativeness and higher persistence of transitory loss components. A sensitivity analysis suggested that firms with founding family ownership and listed on the Mainboard have higher earnings informativeness, while firms with founding family ownership and listed on the SESDAQ have higher persistence of transitory losses. The inconclusiveness of our overall results may be very well due to the small sample size and the lack of available data to construct better proxies of founding family ownership based on pyramidal structures and cross-shareholdings.