%0 Journal Article
%T Founding Family Ownership and Myopic R&D Investment Behavior
%A Kevin Koh
%A Shou-Min Tsao
%A Yin-Wei Chang
%J Journal of Accounting, Auditing & Finance
%@ 2160-4061
%D 2019
%R 10.1177/0148558X17704084
%X This study examines whether founding family ownership mitigates or exacerbates myopic R&D investment behavior. The prior literature suggests that managers are more likely to engage in earnings management¡ªsuch as myopic R&D reduction¡ªwhen firms are facing problematic situations, such as (a) a small earnings decline or loss and/or (b) a debt covenant violation. Employing a sample of R&D-intensive firms in Taiwan, we find that founding family ownership mitigates myopic R&D investment behavior in both problematic situations. These findings are consistent with the ¡°Family Identity¡± dimension of socioemotional wealth (SEW) theory in which family firms have substantial incentives to protect the family¡¯s reputation and to avoid actions that reduce long-run firm value. In supplementary analyses, we find that family firms continue to avoid myopic R&D reduction under these two situations even when they have limited opportunities to engage in accrual-based earnings management. Furthermore, family CEOs are shown to be responsible for mitigating the tendencies of firms to engage in myopic R&D investment behavior, and the mitigating impact on myopic R&D investment behavior is found only in family firms without control-enhancing mechanisms such as voting¨Ccash flow rights divergence. Our findings are not driven by blockholder effects because our results remain robust after controlling for the presence of institutional investors and nonfamily insiders
%K family ownership
%K myopic R&D investment behavior
%K earnings management
%U https://journals.sagepub.com/doi/full/10.1177/0148558X17704084