The role of board independence in mitigating agency problem II in Australian family firms

We investigate the impact of board independence on earnings management on a sample of family controlled firms listed on the Australian Securities Exchange (ASX). Using panel data over the period 2000-2004, we find evidence of earnings management among family controlled firms in Australia, an environment of high investor protection and private benefits of control. Findings show that a higher proportion of independent directors on boards is effective in reducing earnings management, thereby mitigating agency problems associated with entrenchment and expropriation in family firms. We also find that managers of family firms are less aggressive in managing earnings via discretionary long-term accruals compared to non-family firms.