Accounting Research in Family Firms

European Accounting Review
ISSN: 0963-8180 (Print) 1468-4497 (Online) Journal homepage: http://www.tandfonline.com/loi/rear20
Accounting Research in Family Firms: Theoretical

and Empirical Challenges
Annalisa Prencipe, Sasson Bar-Yosef & Henri C. Dekker
To cite this article: Annalisa Prencipe, Sasson Bar-Yosef & Henri C. Dekker (2014) Accounting
Research in Family Firms: Theoretical and Empirical Challenges, European Accounting Review,
23:3, 361-385, DOI: 10.1080/09638180.2014.895621
To link to this article: https://doi.org/10.1080/09638180.2014.895621
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European Accounting Review, 2014
Vol. 23, No. 3, 361– 385, http://dx.doi.org/10.1080/09638180.2014.895621
Accounting Research in Family Firms:

Theoretical and Empirical Challenges
ANNALISA PRENCIPE∗ , SASSON BAR-YOSEF∗ and HENRI C. DEKKER∗∗ ,†

∗
Department of Accounting, Bocconi University, Milano, Italy, ∗ ∗ Department of Accounting, VU University
Amsterdam, Amsterdam, The Netherlands and †Department of Accounting, University of Melbourne, Parkville,
Australia
(Received: June 2013; accepted: December 2013)
A BSTRACT Family firms play a significant role in the global economy. Consistently, over the last two
decades academia has turned its attention to the family dimension as a determinant of business phenomena,
and this interest has increased over time. While family business research has reached an age of
‘adolescence’ as a field of study, accounting research to date seems to have been rather slow to pick up on
the distinctive characteristics of family firms, and their implications for accounting and reporting practices.
In an attempt to accelerate and support research in the field, in this article we highlight theoretical and
empirical challenges that accounting scholars need to consider when addressing issues related to
accounting and reporting in family firms. These challenges include the selection and potential mixing of
appropriate theoretical frameworks, and complications in defining operationally what family firms are. We
also provide a ‘state of the art’ of studies in financial accounting, management accounting and auditing,
identifying which issues in relation to family firms have been addressed in the research, and which
theories, research methods and types of data have been used in these studies. We conclude by providing
directions for future research that can advance our understanding of accounting and reporting in family firms.
1. Introduction: The Relevance of the Issue

Family firms are prevalent and play a significant role in the global economy. According to the
Family Firm Institute (2008), family businesses generate an estimated 70– 90% of global GDP
annually. In the USA, the greatest part of the wealth lies with family-owned businesses. Eighty
to ninety per cent of all enterprises in North America are family firms, contributing 64% of the
GDP and employing 62% of the US workforce. Family firms are common among listed US com-
panies. Prior studies indicate that over 35% of S&P 500 Industrials and about 46% of the S&P
1500 are classified as family firms (Anderson & Reeb, 2003; Chen, Chen, & Cheng, 2008). In
Europe, these numbers are similarly significant. For example, in France 83% of businesses
are classified as family firms and employ close to half of the French workforce. Seventy-nine
per cent of German businesses are labelled as family firms, employing around 45% of the coun-
try’s workforce and creating over 40% of the national turnover. Similarly, in Italy 73% of firms
are family-owned and over 50% of the Italian workforce is employed by such firms.
Notwithstanding the significant presence of family firms worldwide, it is only over the last few
decades that academia has turned its attention to the family dimension as a determinant of
Correspondence Address: Annalisa Prencipe, Bocconi School of Management, Bocconi University, Via Roentgen 1,
room 5-4a-07, 20136 Milano, Italy. Email: annalisa.prencipe@unibocconi.it
Paper accepted by Salvador Carmona.
# 2014 European Accounting Association

362 A. Prencipe et al.
business phenomena, with a significant growth in interest over time. According to a recent
review, the very first academic article dealing (indirectly) with a family firm issue was published
by Trow (1961) on the topic of executive succession in small companies (Benavides-Velasco,
Quintana-Garcı́a, & Guzmán-Parra, 2013). Around the 1980s and during the 1990s, a series
of economic events triggered interest in this area of research. Among these events was the
restructuring of a number of large companies in the USA, and the economic crisis in Europe
that impacted state-controlled corporations. During that period it appeared that family businesses
were more successful, and this motivated scholars to understand better the reasons behind the
success of family firms and the implications of their business model (Culasso, Broccardo,
Giocosa, & Mazzoleni, 2012).
Although the field of family firms has been of interest to researchers in the area of manage-
ment since the 1980s, in the early years the study of family businesses fell into the field of soci-
ology, and at a later stage into small business management. Only during the last decade has a
growing diversity of research interests led to the development of a more comprehensive and
interdisciplinary body of knowledge related to family companies. Indeed, the majority of
studies on family firms found in business, management, economics and finance journals have
been published in the last decade, reinforcing the recent surge of interest in the field.1
Family business research has now reached an age of ‘adolescence’ as a field of study (Gedaj-
lovic, Carney, Chrisman, & Kellermanns, 2012). Academic institutions have begun to establish
specialised departments, the number of chairs endowed to academics with a research focus on
family firms has increased, and international conferences on the issue have become more
common. These developments are indicators of the increasing maturity of the research field
(Gomez-Mejia, Cruz, Berrone, & De Castro, 2011).
Despite these changes over the past few decades, accounting in family firms appears still to be
emerging as a field of inquiry. Although the number of published articles on accounting and
reporting issues in family companies has been steadily growing during the last few years,
there is still a substantial amount of ground to be covered before the intensity of family firm
research in accounting reaches a similar status as in other academic disciplines. In this article,
we intend to highlight some of the major challenges that accounting researchers face when
addressing research questions related to family firms, in an effort to identify possible directions
for future research. We believe that failing to consider the potential influence of the family
dimension in many accounting studies may lead to incomplete or even misleading conclusions;
therefore we call for accounting scholars to be more aware of its impact and consequences.
The remainder of this paper is structured as follows: in Section 2, after summarising the main
features of family firms, we discuss the theoretical challenge, focusing on the most commonly
used and emerging theoretical perspectives in family business research. In Section 3 we intro-
duce and address the empirical challenge, i.e. the problem of defining family firms. In Section
4 we provide a ‘state of the art’ of research on accounting and reporting in family firms, and
in Section 5 we conclude by providing some directions for future research.
2. The Theoretical Challenge

The first challenge that accounting researchers face when addressing issues related to family
firms is theoretical. Indeed, family firms are characterised by a number of different features,
implying that choosing the ‘right’ theoretical framework is a rather complicated task. Therefore,
1
For some statistics about research and publications on family firms, see Siebels and Knyphausen-Aufseß (2011) and
Benavides-Velasco et al. (2013).
Accounting Research in Family Firms 363
before addressing the theoretical challenge, it is worth highlighting the main features that
characterise family businesses, and that differentiate them from non-family firms. These features
generally follow from the strong interaction/integration between family and business life in
family firms that is not present in non-family firms (e.g. Habbershon & Williams, 1999).
In family businesses, the controlling owners typically have sufficient power to guarantee that
the firm pursues their own interests and goals (Anderson & Reeb, 2003, 2004). While this feature
is not exclusive to family firms, the pursued interests and goals typically represent one of the
unique aspects of family firms. In particular, in family firms a prominent role is played by none-
conomic factors, such as the emotional attachment of the family to the business (e.g. Gomez-
Mejia et al., 2011). Typically, family affairs and family members’ emotions – such as love,
loyalty, intimacy, jealousy and anger – tend to permeate the business affairs. Family
members strongly identify themselves with the firm (even more so when the firm carries the
family name), and the manner in which others perceive the firm directly affect their own
image and reputation (e.g. Chrisman, Chua, Kellermanns, & Chang, 2007; Miller & Le
Breton-Miller, 2006; Miller, Le Breton-Miller, & Scholnick, 2008). As a consequence of this
strong attachment, the preservation of family control over the business and the protection of
the firm’s reputation with stakeholders represent important drivers of business decisions. Also
from an economic point of view, the long-term nature of the family investment suggests that
external stakeholders such as customers, suppliers and lenders are likely to deal with the
same group of shareholders, managers and practices for long time. This makes the family
firm’s reputation and social capital critical assets to protect with long-lasting economic
effects on the business (Anderson, Mansi, & Reeb, 2003; Wang, 2006).
A related noneconomic factor that drives family firms’ management is the desire of the family
to preserve the business in the long term, with the final goal of passing it on to next generations
(Anderson & Reeb, 2003; Anderson et al., 2003; Berrone, Cruz, & Gomez-Mejia, 2012; Gomez-
Mejia et al., 2011; Miller & Le Breton-Miller, 2006; Miller et al., 2008). Therefore, family firms’
owners are more likely to focus on firm survival rather than on mere wealth maximisation, with
direct consequences in terms of strategies and decision-making process. In short, noneconomic
factors play a major role in shaping the family’s utility function.
Another primary feature of family firms relates to the owner– managers relationship (e.g.
Anderson & Reeb, 2003). Family businesses are typically characterised by a close relationship
between managers and family (Miller & Le Breton-Miller, 2006; Prencipe, Markarian, &
Pozza, 2008). Firm managers are often family members, or hold close personal relationships
with the family. A relevant consequence of this trait is that for managers of family firms
typical motivations related to the executive job market are less important (Prencipe et al.,
2008). Managers aim to keep their position for the long term, and what counts for success is
their loyalty and ability to preserve the trust of the family rather than just generating financial
results (Miller & Le Breton-Miller, 2006). Furthermore, family members are often directly
involved in the firm’s activities, and consequently typically have superior knowledge of the
business and the ability to closely interact and monitor managers even when the latter do not
belong to the family (e.g. Anderson & Reeb, 2003).
Different theoretical frameworks tend to give prominence to one or more of the above-men-
tioned features. Prior studies of family firms in the areas of management and business have
employed mainly four theoretical frameworks: agency theory (Morck & Yeung, 2003;
Schulze, Lubatkin, & Dino, 2003; Schulze, Lubatkin, Dino, & Buchholz, 2001), stewardship
theory (Miller & Le Breton-Miller, 2006; Miller et al., 2008), the resource-based view (RBV)
of the firm (Habbershon & Williams, 1999; Habbershon, Williams, & MacMillan, 2003;
Sirmon & Hitt, 2003), and socioemotional wealth (SEW) theory (Gomez-Mejia et al., 2011;
Gomez-Mejia, Haynes, Núñez-Nickel, Jacobson, & Moyano-Fuentes, 2007).
Agency theory views the firm as a bundle of contracts, and focuses on potential conflicts of
interest arising from asymmetry of information between two contractual parties, i.e. the principal
and the agent (Jensen & Meckling, 1976; Ross, 1973). Agents are considered to be opportunistic
wealth-maximising actors, which gives rise to problems such as moral hazard and adverse selec-
tion. Agency costs arise as a consequence of such opportunistic behaviours, or as a consequence
of the actions taken to mitigate or reduce these behaviours.
One of the central agency relationships that creates agency problems is the conflict of interests
between owners and managers. Managers are seen as agents of the owners, and the separation
between ownership and control has long been considered the main agency relationship in the
firm (Fama & Jensen, 1983b). This type of conflict has been dubbed in the literature as the
‘Type I’ agency problem (Villalonga & Amit, 2006). It is argued, however, that when managers
are also owners of the firm, Type I agency issues are minimised, as personal ownership contrib-
utes to aligning managers’ interests with those of non-manager owners (Ang, Cole, & Lin, 2000;
Fama & Jensen, 1983a, 1983b; Jensen & Meckling, 1976; Schulze, Lubatkin, & Dino, 2002;
Schulze et al., 2001). As many family firms are characterised by the presence of family
members as corporate executives and by a greater awareness of the family of managers’
actions, it is generally argued that these firms are exposed to lower Type I agency costs and
require comparatively less investment in monitoring and control mechanisms (Chrisman,
Chua, & Litz, 2004; Daily & Dollinger, 1992; Gomez-Mejia, Núñez-Nickel, & Gutierrez,
2001; Jensen & Meckling, 1976). This phenomenon is referred to as the ‘alignment effect’
(e.g. Ali, Chen, & Radhakrishnan, 2007; Wang, 2006). However, the reduced Type I agency pro-
blems in family firms may give rise to a different agency problem, i.e. the conflict between con-
trolling family owners and other owners. Family executives may potentially use their positions
and superior information to exploit less influential and less well informed owners. This type of
agency issue is dubbed as the ‘Type II’ agency problem (Villalonga & Amit, 2006) or as the
‘principal – principal’ agency problem (Morck, Wolfenzon, & Yeung, 2005). Central in this
agency problem is that dominant family members – who are at the same time owners and man-
agers – might take advantage of their position to serve personal interests to the detriment of
other owners (Schulze et al., 2002; Schulze et al., 2001), for example through behaviours as
shirking or free-riding. The Type II agency problem gives rise to the so-called entrenchment
effect (e.g. Ali et al., 2007; Wang, 2006).
In short, among the various idiosyncratic features of family firms, the agency framework
focuses on the contractual relationship of the controlling family with managers and with other
shareholders, paying particular attention to the risk of opportunistic behaviours. According to
this framework, a typical family firm is characterised by a less relevant owner – manager
agency problem, but a potentially more relevant owner – owner agency issue, given the powerful
position of controlling family executives vs. minority non-influential owners, who may be either
members of the same family or outsiders. Risk aversion, altruism towards offspring and
entrenchment in key positions have often been seen as typical limiting family practices
within an agency perspective (e.g. Beatty & Zajac, 1994; Bertrand & Schoar, 2006; Claessens,
Djankov, Fan, & Lang, 2002; Kahneman & Tversky, 1986; Lubatkin, Durand, & Ling, 2007;
Schulze et al., 2003; Schulze et al., 2001; Volpin, 2002). A limitation of the agency framework
is however that it narrows the focus to only agency relationships in the family business, while
ignoring other relevant features as outlined above.
An alternative framework for the analysis of family firms is provided by stewardship theory
(Miller & Le Breton-Miller, 2006; Miller et al., 2008). The expression ‘stewardship’ implies
human caring, generosity, loyalty, and responsible devotion, usually towards a social group or
institution. Based on sociology and psychology foundations, stewardship theory substitutes
the assumption of opportunistic behaviours by agents, and suggests that agents (referred to as
‘stewards’) are motivated by goals other than sole private economic interest, and often act for the
benefit of the entire organisation (Davis, Schoorman, & Donaldson, 1997; Donaldson, 1990;
Donaldson & Davis, 1991). In other words, stewards are motivated by higher-level needs, as
they feel that they are part of the organisation and act for the collective good of its stakeholders.
Stewards’ actions are driven by the fact that the utility derived from a self-oriented attitude is
dominated by the utility generated by pro-organisation behaviour. This leads to a natural align-
ment of their interests with those of other principals.
Stewardship theory applies particularly well to family firms. Indeed, stewardship arises
among parties in which the relationships are stable, where there is a significant interdependence
and interaction, and where people share a similar social network (Bourdieu, 1986; Nahapiet &
Ghoshal, 1998; Putnam, 2000). These conditions are typical of family firms. Also, family execu-
tives tend to be strongly attached to and to identify with the family firm, and behave with loyalty
towards it. The firm is considered to be a legacy of the family, something to be proud of and to be
preserved for future generations. Family managers are therefore strongly motivated to work for
the long-term survival of the firm (Miller & Le Breton-Miller, 2005; Miller et al., 2008). Miller
et al. (2008) identify three main dimensions of stewardship in the context of family firms: ‘con-
tinuity’, ‘community’ and ‘connection’. ‘Continuity’ refers to the aspiration of the family to
ensure the longevity of the firm, to the benefit of family members. ‘Community’ refers to the
creation of a collective corporate culture, where staff members are highly competent and motiv-
ated, while ‘connection’ refers to the strong relationships of the family with external stake-
holders who might assist in sustaining the business in tough times. However, when
stewardship is established not towards the entire business but towards the family itself, the bor-
derline between the agency and stewardship perspectives becomes less clear (Bertrand &
Schoar, 2006; Bloom & Van Reenen, 2007; Schulze et al., 2001). Altruism towards family
members who do not deserve their positions or their rewards may be detrimental to the organ-
isation, as stated by the agency perspective (e.g. Karra, Tracey, & Phillips, 2006).
Evidently, among the idiosyncratic features of family firms highlighted above, the steward-
ship perspective overcomes the assumption of opportunistic behaviour and gives prominence
to noneconomic factors that drive families’ decisions and behaviours, such as the identification
and the attachment of family members to the business, their care for reputation and stakeholders
and the will to preserve the business for future generations. In the owner – manager relationship,
the accent is put on the alignment of interests based on loyalty and altruism of family members
towards the organisation and its stakeholders, rather than on the risk of individual opportunistic
behaviour.
Both agency and stewardship theory find empirical support in prior research (Chrisman et al.,
2007; Nicholson & Kiel, 2007). In the light of this and in the attempt to reconcile agency and
stewardship perspectives, Le Breton-Miller, Miller, and Lester (2011) suggest that both views
can be usefully applied in family firms, but under different circumstances. Particularly, they
argue that this depends on the degree to which the firm and its executives are embedded
within the family, and thus their identification with its interests. Agency behaviour will be
more common and prevalent compared to stewardship behaviour when there is a greater
number of family directors, officers, generations, and votes, and when more executives are sus-
ceptible to family influence. This suggestion is in line with the idea that a combination of differ-
ent frameworks may prove useful and effective to better understand family firms.
A third theoretical framework applied in the study of family firms is the RBV of the firm. The
RBV is based on the assumption that returns achieved by firms are largely attributable to their
resources (Penrose, 1959). The main argument is that firms are able to sustain their competitive
advantage when they are able to develop valuable and rare resources which cannot be easily imi-
tated or substituted by competitors (Barney, 1991; Teece, Pisano, & Shuen, 1997). Therefore, the
RBV may be utilised to identify critical resources that distinguish family from non-family firms
(Chua, Chrisman, & Steier, 2003). In this respect, for example, Habbershon and Williams (1999)
and Habbershon et al. (2003) argue that the intersection of family and business (i.e. the firm’s
‘familiness’), if managed purposefully and efficiently, may lead to hard-to-duplicate capabilities
that make family firms particularly suited for survival and growth. Along similar lines, Sirmon
and Hitt (2003) identify a list of resources of family firms – human capital, patient capital, social
capital, survivability capital, and the governance structure – that make them different from non-
family firms.
Among the idiosyncratic features of family firms, the RBV focuses on the interaction of the
family (as a whole or of its individual members) and the business systems, trying to identify the
unique bundle of resources that arise from this integration and their potential effects on perform-
ance. Both economic and noneconomic factors are taken into consideration in identifying the
strategic resources that make family firms distinctive and potentially able to succeed in their
competitive strategy.
Although the RBV has the potential to provide valuable insights into how resource configur-
ations of family firms differ from those of non-family firms and how these may lead to competi-
tive advantages, empirical evidence to date is limited.
More recently, another theoretical framework has emerged in the field of family business
research: the SEW. In contrast to agency theory, stewardship theory and the RBV, which in a
way were adopted from other disciplines such as management and economics, the SEW
theory was developed from within the field of family business research, as an extension of be-
havioural agency theory (Cennamo, Berrone, Cruz, & Gomez-Mejia, 2012; Gomez-Mejia et al.,
2011; Gomez-Mejia et al., 2007; Gomez-Mejia, Makri, & Kintana, 2010). According to the SEW
theory, family firms are motivated by, and committed to, the preservation of their SEW. SEW
refers to non-financial affect-related values including, for example, fulfilment of the needs for
belonging, affect, and intimacy; identification of the family with the firm; desire to exercise auth-
ority and to retain influence and control within the firm; continuation of family values through
the firm; preservation of family firm social capital and the family dynasty; discharge of familial
obligations; and the capacity to act altruistically towards family members using firm resources
(Berrone, Cruz, Gomez-Mejia, & Larraza-Kintana, 2010; Gomez-Mejia et al., 2007; Gomez-
Mejia et al., 2010). Berrone et al. (2012) break down the SEW into five dimensions, namely:
family control and influence, identification with the firm, dynastic succession, emotional attach-
ment and social ties.2
Consistent with behavioural agency theory, the SEW model relies on the assumption that the
decisions of principals in family firms are motivated by the desire to preserve accumulated
endowment in the firm, which in the case of family firms is represented by SEW (Gomez-
Mejia, Welbourne, & Wiseman, 2000; Wiseman & Gomez-Mejia, 1998). Therefore, it is not
necessarily an economic consideration that drives principals’ decisions, but rather the preser-
vation of the socioemotional endowment, even when it contrasts with typical economic and/
or financial goals. Family principals are highly loss-averse to socioemotional endowment,
rather than risk averse. This contrasts with agency theory arguments, which put risk aversion
at the centre of decision-making. Similarly to the stewardship theory, the SEW theory allows
2
Berrone et al. (2012, pp. 262–264) define the five components of the SEW theory as follows. Family control and influ-
ence refers to the control and influence of family members over strategic decisions. Identification with the firm refers to
the close identification of the family with the business. Social ties refer to family firms’ social relationships. Emotional
attachment refers to the role of emotions in the family business context. Dynastic succession refers to the intention of
handing the business down to future generations.
for collaborative behaviours; however it also allows for opportunistic and selfish behaviours,
which brings the theory closer to the agency than to the stewardship perspective.
Clearly, among the idiosyncratic features of family firms, the SEW gives prominence and
elaborates on noneconomic factors that shape family firms’ management, putting the preser-
vation of SEW at the centre of family firms’ goals and behaviours. In recent years, the
number of studies using SEW theory has been growing, generally providing support to the val-
idity of the model in the field of family firms (Cennamo et al., 2012).
The question of which is the most suitable theoretical framework for research in family firms is
rather complex. Given the multifaceted issues and complexities that characterise family firms (and
which may lead to both positive and negative effects on the firm and its stakeholders), it is probably
through a combination of different frameworks that researchers might find a more effective way to
test their research questions. Indeed, a single paradigm that focuses on one or another trait, or gives
prominence only to the positive or the negative aspect of the family dimension, may be unable to
capture in full the essence and behaviour of family firms. This holds true particularly when the
empirical evidence on such questions provides unclear or mixed results, which is a common
case in family firm studies.
The theoretical challenge highlighted above emphasises the importance of the selection of a
suitable theoretical framework to provide the best ‘fit’ with the study’s research question, and
particularly with the family firm characteristics that are expected to be of major influence or
importance.
3. The Empirical Challenges: Defining Family Firms

Once a position has been taken regarding the theoretical framework(s) to apply, scholars who
intend to research family firms face another challenge: how to operationally define a ‘family
firm’. The debate surrounding an appropriate definition of the family firm has been going on
for a long time, since the very first article published in the first issue of the Family Business
Review (Lansberg, 1988). Various definitions have been proposed by prior studies, causing com-
parability between them to pose a serious challenge. A study conducted on behalf of the Euro-
pean Commission (KMU Forschung Austria, 2008) mapped the definition of ‘family business’ in
33 countries, looking at policy discussions, legal regulations as well as academic research. A
total of 90 different definitions were identified, which include combinations of elements such
as family ownership, the role of the family in management/strategic control, the active involve-
ment of family members in the enterprise’s everyday activities, intergenerational considerations,
or even a mere perception by respondents. Each of these elements, in turn, has been operationa-
lised in several different ways.3 Obviously, this plethora of definitions and measurements of
family firms signals the difficulty in reaching a common operational definition.
Over the past few years, the focus of the definition problem has shifted from dichotomous
definitions aimed at separating family from non-family firms to more articulated definitions
that allow to distinguish between various types of family firms. A general agreement has
emerged among management scholars that dichotomous definitions should be avoided
3
For example, ownership has been operationalised in alternative ways, such as the family owns the majority of voting
shares (.50%), the family owns at least 10– 25% (for public companies), or the family is the largest owner. Similarly
strategic/managerial control has been operationalised using ‘soft’ criteria (e.g. family relations affect the assignment of
the management, a significant proportion of the company’s senior management belongs to the family, the most important
decisions are made by the family, or at least two generations have had control over the enterprise) or ‘hard’ criteria (e.g.
the CEO belongs to the family; one, or at least one family member is involved in the operating management; at least two
or three board members stem from the family, or the majority of the management team comes from the family).
(e.g. Deephouse & Jaskiewicz, 2013). Although a dichotomous approach is still common in
empirical studies, especially outside the management literature, a growing number of scholars
have started to recognise that family firms are quite heterogeneous on various aspects (e.g. Chris-
man, Chua, Pearson, & Barnett, 2012; Chua, Chrisman, & Sharms, 1999) and have begun
searching for a more adequate approach for empirical measurement.
Several authors have sought to identify the elements that drive family involvement that can
possibly be useful in a definition of the family firm. For example, in the attempt to quantify
the contribution of family firms to the US economy, Shanker and Astrachan (1996) and
Shanker and Astrachan (2003) suggest a range, from a broad definition where there is limited
family involvement (the family controls the strategic direction of the business and participates
somehow in the business), to a middle definition characterised by some level of family involve-
ment (the founder/descendant runs the company and it is intended that the company will remain
in the family), up to a narrow definition where family involvement is at a high level (multiple
generations are involved in the company and more than one family member has management
responsibility). Another attempt has been made by Westhead and Cowling (1998) who, based
on a literature review, identified several elements that could appear in a family business defi-
nition, such as: whether the majority of ordinary voting shares in the company are owned by
members of the largest family group related by blood or marriage; whether the management
team in the company is comprised primarily of members drawn from the single dominant
family group that owns the business; whether the company has experienced an intergenerational
ownership transition to a second or later generation of family members drawn from a single
dominant family group owning the business; and whether the chief executive, managing director
or chairman perceive the company to be a family business.
Most definitions, like those mentioned above, stress the various levels of involvement of the
family in the company. This is known as the ‘involvement approach’, which focuses on the
family’s power to direct goals, strategies and actions (Deephouse & Jaskiewicz, 2013;
Gomez-Mejia et al., 2011). Typical proxies for family involvement are the level of family own-
ership, family involvement in management or, more generally, family involvement in the gov-
ernance of the company.
A concern about the involvement approach is that it does not capture goal differences among
family firms. Therefore, a second approach has emerged: the ‘essence approach’ (e.g. Chrisman
et al., 2012; Chua et al., 1999; Deephouse & Jaskiewicz, 2013). This approach focuses on the
‘essence’ of family firms, which is explained as the role of the family in shaping the identity
of the firm. The essence approach recognises that family firms – even with a similar level of
involvement – might differ in terms of family members’ identification with the firm, and there-
fore in terms of vision, culture, values, goals and behaviours. The essence approach considers
family involvement as a necessary condition, but as not sufficient to distinguish family
businesses from non-family businesses, or various levels of the family dimension among
family firms.
Both the involvement and the essence approaches are consistent with the idea that there is a
sort of continuum in the family dimension of a firm. In a well-known contribution, Astrachan,
Klein, and Smyrnios (2002) suggest measuring the degree of family influence employing a mul-
tidimensional scale that incorporates both the involvement and the essence approaches. They
propose the ‘Family Power Experience Culture Scale’, which enables measurement of the
degree of family influence on a continuous scale by combining three main dimensions:
power, experience and culture. A score is calculated for each dimension, and a global
measure for family influence is computed as a combination of the different scores.
Although the idea of a continuum in the level of the family dimension is sharable on theor-
etical grounds, understandably, empiricists who use large archival databases tend to rely on
reductionist proxies (e.g. family ownership, composition of board of directors, family members
in top management) to measure the degree of family influence. Different studies still use a
variety of definitions, based on a combination of the various involvement proxies and, in
some cases, they set thresholds to separate family from non-family firms.
The fact that there are various operational definitions in empirical research makes comparabil-
ity of various studies complicated, if not impossible. This appears to be to some extent a limit-
ation that researchers of family firms have to accept. However, one may also wonder whether it
is indeed necessary to have a standard operational definition of a family firm. Use of different
definitions across studies, with the choice depending on how well the definition fits a study’s
research questions and setting, may represent a useful way to capture various facets of family
firms and to investigate their effects on actions and results.
4. Accounting and Reporting in Family Firms: The State of the Art

Accounting researchers who intend to study family firms face similar challenges to the one
described in the previous sections. In particular, the choice of a proper theoretical framework
to analyse determinants and effects of accounting information in family firms, and the definition
of family firms are issues that characterise the accounting field as well. In addition, questions
such as the choice of a proper research method (i.e. theoretical/conceptual or empirical) and
the collection of data are generally faced by accounting researchers.
Through a description of the ‘state of the art’ of research on accounting and reporting in
family firms, in this section we highlight how the above-mentioned issues have been
addressed by accounting scholars. For this purpose, we discuss here the results of a broad
literature review. We confine our review to articles published since 1980, and restrict our
selection to papers that explicitly relate accounting and reporting issues to family firms.4
The themes included in our review broadly cover the domains of financial accounting and
reporting, management accounting and control, and auditing. Our search includes also find-
ings of prior reviews as far as they explicitly refer to family firms (e.g. Salvato &
Moores, 2010), and papers that have been published after these reviews.5
Our literature review resulted in a set of 37 published papers that explicitly examine account-
ing and reporting issues in family firms.6 Below, we report the result of our search in which we
focus in particular on the following aspects:
. the key issues addressed;

. the theoretical framework employed;
. the operational definition of family firm adopted;
4
Because of this reason, unless explicitly linked to family ownership, studies on ownership concentration and/or insider
ownership were disregarded in our search of the literature. We take a broad perspective on what constitutes accounting
practices. For instance, while not explicitly referring to management accounting or control, a study on strategic planning
(e.g. Blumentritt, 2006) is considered a management accounting paper. We disregard accounting papers that are located
empirically in a family-firm setting, but do not explicitly examine the implications of that setting (e.g. Anderson, Dekker,
& Sedatole, 2010). We also omit from our review the limited literature on tax behaviour in family firms (e.g. Chen, Chen,
Cheng, & Shevlin, 2010).
5
Our selection criteria result in a more limited set of publications than reported in Salvato and Moores (2010). Their
review paper also includes studies on topics such as ownership concentration, inside ownership, privately held firms,
in which there is no clear analysis or evidence of family issues.
6
We exclude from the selection Hutton (2007), which provides a discussion of Ali et al. (2007) and does not constitute a
study in itself.
. the research method (i.e. theoretical/conceptual or empirical) applied, and the type/source
of data used.
Detailed results of the search are reported in Table 1. In addition, the table includes a short
summary statement of the key findings of each study.
4.1. Key Issues in Published Accounting Research on Family Firms

It is evident that the majority of studies (22 papers, 59% of the total) examine financial account-
ing and reporting issues. Eight papers (22%) examine management accounting and control ques-
tions, and six (16%) relate to auditing questions in a family firm context. Financial accounting
and reporting papers are predominantly confined to the issues of earnings quality, earnings man-
agement, voluntary disclosures, and the impact of corporate governance choices/board compo-
sition on reporting quality. Management accounting and control studies seem to be quite diverse
in their research questions, and broadly cover issues of management accounting and control
choices and practices in family firms, drivers of management accounting choices in family
firms, and the role of management accounting and control in changes and transitions over
time. The six identified audit papers address the demand for auditing by family firms, the associ-
ation between family firms and audit quality, timing and effort, auditor choice, and differences
between family and non-family firms regarding auditor resignation.
Overall, it appears that family-firm issues are still relatively new to the fields of management
accounting and auditing. More research efforts in these areas may help improve our understand-
ing of how the antecedents and consequences of management accounting and auditing choices
identified in prior research apply in companies characterised by family influence.
4.2. Theoretical Frameworks Employed in Accounting Research on Family Firms

Regarding the theoretical framework, we classify the 37 surveyed papers by the predominant
theory employed to develop the hypotheses and/or to explain empirical observations. This classi-
fication clearly indicates that agency theory is the dominant paradigm. Indeed, 21 papers (57% of
the total) are based primarily on agency theory. These research studies rely extensively on one of
or both the Type I and Type II agency problems discussed in Section 2. In particular, these
papers aim at exploring the implications of the closer alignment of interests between owners
and managers (Type I agency problem) and of the entrenchment effect deriving from the diver-
gence of interests between family shareholders and minority shareholders (Type II agency
problem) on issues such as earnings quality, earnings management, voluntary disclosure, gov-
ernance choices/board composition and internal control systems, demand for auditing, audit
quality, and auditor choice and resignation. This dominant reliance on agency theory fits with
the broader use of the agency paradigm in accounting research.
More recently, accounting scholars have begun to embrace new perspectives, such as the SEW
theory, focusing on noneconomic factors that drive family firms’ decisions and behaviours. In
particular, we identified four papers that argue that accounting choices are primarily based on
the preservation of different aspects of the family’s SEW (Achleitner et al., 2014; Gomez-
Mejia et al., 2014; Pazzaglia et al., 2013; Stockmans et al., 2010). In particular, Gomez-Mejia
et al. (2014) contend that, in family firms, financial reporting decisions such as earnings manage-
ment and voluntary disclosure policies are driven by the preservation of the different aspects of
the family SEW. While the number of studies relying on SEW theory is still limited, the empiri-
cal evidence provides support that SEW is a potential driver of accounting choices, supporting
the validity of the theory and its potential for future research.
Table 1. Published research on accounting and reporting issues in family firms
Main theoretical
Authors Journala Fieldb Topic framework Scope Definition of family firms Main findings
Achleitner, Fichtl, EAR FA Earnings SEW Family % ownership or family Family firms engage less in real earnings
Kaserer, and management vs. members on management, more in earnings-decreasing
Siciliano (2014) non- management or accounting earnings management, and treat
family supervisory board these as substitute tools for earnings
management
Ali et al. (2007) JAE FA Disclosure Agency Family % ownership or family Family firms report better quality earnings,
vs. members on the board/ are more likely to warn for bad news, and
non- top management make fewer disclosures about corporate
family governance practices
Blumentritt (2006) FBR MA Planning practices Family Externally defined Family firms with an advisory board engage
more in strategic planning and succession
planning
Carey and Guest JAAF AUD Audit timing Agency Family Family majority on board The optimal timing for financial audits in
(2000) family-controlled firms is determined by
trading off audit costs and expected losses
Accounting Research in Family Firms

Carey, Simnett, and AJPT AUD Demand for Agency Family Externally defined Internal audits are often outsourced, used
Tanewski (2000) auditing more than external audits, but agency
proxies and firm debt better explain
demand for external audits. Voluntary
internal and external audits are seen as
substitutes
Cascino, Pugliese, FBR FA Accounting quality Agency Family % ownership and family Family firms convey financial information of
Mussolino, and vs. members on the board/ higher quality and differ in determinants of
Sansone (2010) non- top management accounting quality
family
Chau and Gray JIAAT FA Disclosure Agency Family % ownership Voluntary disclosure is greater (lesser) for
(2010) vs. firms with higher (lower) family
non- shareholding, and with the appointment of
family an independent chairman, which mitigates
the influence of family ownership
(Continued)
371
372
Table 1. Continued
A. Prencipe et al.
Main theoretical
Chen and Jaggi JAPP FA Disclosure Agency Family % ownership and family Family-controlled firms show a weaker
(2000) vs. members on the board positive association between the
non- comprehensiveness of financial disclosures
family and the percentage of independent non-
executive directors on corporate boards
Chen et al. (2008) JAR FA Disclosure Agency Family % ownership or family Family firms provide fewer earnings forecasts
vs. members on the board/ and conference calls, but more earnings
non- top management warnings
family
Chen et al. (2014) EAR FA Conservatism Agency Family % ownership or family Conservatism increases with non-CEO family
vs. members on the board/ ownership, but not in family firms with
non- top management founders serving as CEOs
family
Filbeck and Lee FBR MA Financial Family Externally defined More established, larger family firms with an
(2000) management outside board of directors or a non-family
techniques member in financial decision-making roles
use more sophisticated financial
management techniques
Giovannoni, FBR MA Succession Life cycle Family Case-related Management accounting can affect the
Maraghini, and transfer of knowledge across generations
Riccaboni (2011) and between owner family and
management team
Gomez-Mejia, EAR FA Earnings SEW Financial reporting decisions are
Cruz, and management differentially affected by different
Imperatore Disclosure dimensions of families’ SEW preservation
(2014)c relating to Family Control and Influence,
and Family Identification
Hiebl, Feldbauer- JAOC MA Transition Man. acc. Family % ownership and family Controlling family influence is negatively
Durstmüller, and change vs. members on supervisory correlated with the institutionalisation and
Duller (2013) framework non- or management board intensification of management accounting
family in medium-sized firms, but not in large
firms
Hope, Langli, and AOS AUD Audit effort Agency Family % ownership and family Audit effort, as proxied by fees and choice of
Thomas (2012) Auditor choice vs. members on the board/ high-quality (BIG4) auditor, are affected
non- top management by family relationships
family
Jaggi and Leung JIAAT FA Earnings Agency Family Family members on board Audit committees constrain earnings
(2007) management vs. management, but are less effective when
non- family members are on corporate boards
family
Jaggi, Leung, and JAPP FA Earnings Agency Family % ownership and family The effectiveness in monitoring earnings
Gul (2009) management vs. members on the board management of independent corporate
non- boards is moderated in family-controlled
family firms
Jiraporn and DaDalt AEL FA Earnings Agency Family % ownership or family Family firms are less likely to manage
(2009) management vs. members on the board earnings
non-
family
Khalil, Cohen, and AH AUD Auditor Agency Family % ownership or family Family firms have lower likelihood of auditor
Trompeter resignation vs. member on the board/top resignation, and abnormal returns
(2011) non- management following auditor resignations are higher
family

Moores and Mula FBR MA Management Life cycle, Org. Family Externally defined Family firms use different control
(2000) control control mechanisms at each stage of their life cycle
Niskanen, FBR AUD Audit quality Agency Family % ownership or family Family firms are less likely to use Big Four
Karjalainen, and vs. members on the board auditors, and an increase in family
Niskanen (2010) non- ownership decreases likelihood of a Big
family Four audit
Pazzaglia, Mengoli, FBR FA Earnings quality SEW Family % ownership Firms acquired by families through market
and Sapienza firms transactions display lower earnings quality
(2013) than firms owned by families that created
them
Prencipe and Bar- JAAF FA Earnings Agency Family % ownership or family The percentage of independent directors on
Yosef (2011) management vs. control on strategic the board has a weaker effect on earnings
non- decisions management in family-controlled firms
family
(Continued)
373
374
Table 1. Continued
Main theoretical
A. Prencipe et al.
Prencipe et al. FBR FA Earnings Agency and Family % ownership or family Family firms show weaker negative
(2008) management stewardship vs. control on strategic associations between R&D cost
non- decisions capitalisation and the level of and change
family in profitability, but not with leverage
Prencipe, Bar- CGIR FA Earnings Agency and Family % ownership or family Income smoothing is less likely among
Yosef, Mazzola, management stewardship vs. control on strategic family-controlled firms, and among these
and Pozza (2011) non- decisions firms, it is less likely when CEO and Board
family Chairman are members of the controlling
family
Salvato and Moores FBR Review
(2010)c
Shujun, Baozhi, and JAAF FA Earnings Agency Family % ownership Chinese-listed family firms have less
Zili (2011) management vs. informative accounting earnings, employ
Conservatism non- less conservative accounting practices, and
family have higher discretionary accruals
Speckbacher and MAR MA Management RBV, Family % ownership and family Founding family involvement in top
Wentges (2012) control choices contingency, vs. member on the board/top management team is associated with less
stewardship non- management frequent use of performance measures in
family strategic target setting and incentive
practices
Stergiou, Ashraf, CPA MA Man.acc. control Critical realism Family Case-related Changes in management control practices are
and Uddin (2013) change influenced by different interacting
structural conditions as mediated through
human agency
Stockmans, FBR FA Earnings SEW Family Not quoted, perceived as When firm performance is poor, first-
Lyabert, and management FF, % ownership, and generation and founder-led private family
Voordeckers size constraint firms engage more in upward earnings
(2010) management
Tong (2008) AA FA Earnings Agency Family % ownership or family Family firms have higher quality reporting,
management vs. member on the board/top reflected by lower absolute discretionary
non- management accruals, fewer small positive earnings
family surprises, more informative earnings and
less restatements
Trotman and FBR AUD Review
Trotman (2010)c
Upton, Teal, and JSBM MA Planning practices Strategic Family % ownership and family The majority of family firms surveyed
Felan (2001) typologies member on the board prepare written formal plans, tie planning
and intent to pass the to actual performance and adjust
firm to next generation management compensation accordingly
Wan Nordin (2009) IJA FA Disclosure Agency Family Family members on the Family firms are more inclined to disclose all
vs. board required items for the primary basis of
non- segment reporting
family
Wang (2006) JAR FA Earnings quality Agency Family % ownership or family Family firms have higher earnings quality,
vs. member on the board/top reflected by lower abnormal accruals, more
non- management informative earnings, and less persistence
family of transitory loss components
Weiss (2014) EAR FA Internal controls Agency Family Family members on the Family-owned firms report less material

disclosure vs. board/top management weaknesses in internal controls, have lower
non- earnings quality if they do, which investors
family find to be more serious in their potential to
lessen future performance
Yang (2010) FBR FA Earnings Agency Family % ownership Earnings management increases with the
management vs. level of insider ownership in family-
non- controlled firms, and decreases with
family presence of family CEO
a
Full journal titles are provided in the reference list.
b
AUD, auditing; FA, financial accounting; MA, management accounting.
c
All papers are empirical except for Gomez-Mejia et al. (2014), Salvato and Moores (2010) and Trotman and Trotman (2010), which are conceptual/review papers.
375
In addition to these more commonly used theoretical frameworks in family firm research, the
literature also indicates the occasional adoption of other theoretical perspectives in the family
firm setting. For instance, organisational life-cycle theory has been employed to study questions
of dynamics, transition and generational change within family firms (e.g. Miller, Steier, & La
Breton-Miller, 2003), and has been adopted by accounting researchers to study how life-cycle
stages, changes and transitions are associated with management accounting and control
(change) (Giovannoni et al., 2011; Hiebl et al., 2013; Moores & Mula, 2000). Similarly,
studies have applied strategic and contingency-based frameworks to the family firm setting to
identify differentiating characteristics of family firms that help to explain choices, practices
and processes, including their adoption and use of various management accounting practices
(e.g. Speckbacher & Wentges, 2012; Upton et al., 2001). While these frameworks are not
unique to the family field, these studies aim at identifying unique implications for family
firms in order to understand strategy, dynamics and the interrelations with management account-
ing over time.
Somewhat surprisingly, we find no accounting study that applies only stewardship theory as
the main theoretical framework. Similarly, we identified no accounting studies relying only on
the RBV framework, which like stewardship theory is more commonly applied in other fields
(e.g. management). However, our review highlights that some studies apply multiple theories
to explain accounting choices and practices in family firms (three studies, 8% of the total).
Two of these papers utilise combinations of agency theory and stewardship theory in the analysis
of firms’ earnings management practices (Prencipe et al., 2011; Prencipe et al., 2008). Another
paper in this group mixes RBV theory with stewardship and contingency arguments to explain
management control choices by family firms (Speckbacher & Wentges, 2012). Thus, although
the stewardship theory and the RBV are not used independently by accounting researchers, it
appears that some studies have fruitfully employed these perspectives in conjunction with
other theories.7
Overall, while our review indicates a clear preference for agency theory as a theoretical frame-
work for the study of accounting and reporting issues in family firms, this is by no means the only
theoretical basis used by accounting studies. For many research questions it seems natural to
place accounting research within an agency framework. However, the alternative frameworks
discussed may provide useful insights for the formulation of new and interesting hypotheses
on the reporting and auditing of accounting information, and on the use of accounting and
control practices by family firms. In general, our review of the literature suggests that accounting
scholars need to be selective in their application of theory to ensure that the applied framework
fits the nature of the addressed research questions. This may translate into the use of various the-
ories in the study of the same accounting phenomenon, in line with what is discussed in Section
2. Future studies might see it as an opportunity to compare theories and explicitly identify con-
vergence of and/or divergence in predictions, and to empirically test these predictions in a com-
parative manner.
Generally speaking, when considering the richness of the research field and the diversity of the
research questions to be addressed, a pluralistic view in terms of use of theory seems desirable.
4.3. Operational Definition of Family Firms

When examining which operational definitions of family firms are used in the selection of
papers, a rather fragmented view emerges, indicating that accounting research lacks consistency.
7
Our review also indicates that a few papers do not refer explicitly to any theoretical framework.
This aligns well with the lack of consistency that characterises the family business field in
general, as described in Section 2. Definitions used by accounting scholars who investigated
family firms range from ready-made classifications provided by outside institutions (e.g. Ali
et al., 2007; Blumentritt, 2006; Tong, 2008), to classifications based on family ownership
and/or the family presence on the board or in the top management of the firm (e.g. Achleitner
et al., 2014; Cascino et al., 2010; Chen, Chen, & Cheng, 2014; Jiraporn & Dadalt, 2009;
Khalil et al., 2011; Prencipe et al., 2011; Prencipe et al., 2008; Wang, 2006; Weiss, 2014), up
to more qualitative definitions that consider the perception of the top management or the inten-
tion to pass the firm to the next generation (e.g. Stockmans et al., 2010; Upton et al., 2001). A
limited number of studies simply assume the definition as given by the nature of the data (e.g.
Giovannoni et al., 2011; Stergiou et al., 2013).
Undoubtedly, the most commonly used definitions are those that follow the involvement
approach, mainly based on the proportion of stock held by the family and/or the family presence
on the board of directors or in the top management of the firm. It appears that the general pre-
ference in accounting studies for the involvement approach fits well with the agency theory –
which focuses on the separation between owners and managers or dominant and minority
owners and which is the dominant theoretical approach – and with the empirical nature of
most accounting research. However, different criteria are used to determine whether or not
firms are subject to a significant degree of family influence, which makes comparability
between studies problematic. For example, with respect to the thresholds of stock ownership,
large differences are observed among studies, with institutional differences across countries
(e.g. in stock ownership dispersion and investor protection) strongly affecting the level of
thresholds employed. For example, while holding 5% or more of the voting shares in a US-
listed company is considered sufficient to indicate the presence of a dominant shareholder
and thus, potentially, a family firm – in a European country like Italy – such a threshold is
too low, given that the average level of ownership of the major shareholder among non-finan-
cial-listed firms is about 58% (Prencipe et al., 2011). Using a too low threshold would simply
result in the classification of all Italian-listed firms as family firms. Similarly, variation is
evident in the number of family members on the board of directors that are required to satisfy
the definition of family influence. In order to mitigate the concern that the results achieved
might depend on the criteria employed, several studies make use of alternative criteria to deter-
mine family influence to test the robustness of their findings.
While the choice of a specific definition of family firm may be legitimate in a given context, as
in other fields of family business research, this lack of comparability of research findings com-
plicates the aggregation of findings and the assessment of the stock of knowledge about account-
ing and reporting in family firms. Although the possibility of using different definitions may
represent an opportunity to capture various facets of family firms, our belief is that researchers
should properly clarify and justify (both from a conceptual and an empirical perspective) the
adopted definition in their work, at the same time making readers aware of the extent to
which the study’s conclusions can be generalised to other settings.
An additional aspect that emerges from our literature review is that most prior accounting
studies have relied on the simplistic dichotomous distinction between family and non-
family firms rather than on the differences among family firms. From this point of view,
accounting research on family firms is still dawning. Much still can and needs to be
done to investigate accounting and reporting issues in relation to different levels of the
family dimension. Such a change might take place in conjunction with a progressive
shift from the dominant agency model to the broader adoption of the stewardship or
SEW frameworks, as discussed above.
4.4. Research Methods and Type of Data Employed

With regard to the methods employed by the selected studies, it is evident that contributions on
accounting and reporting in family firms are overwhelmingly empirical. With the exception of a
few conceptual manuscripts (Gomez-Mejia et al., 2014; Salvato & Moores, 2010; Trotman &
Trotman, 2010), all other papers offer empirical analyses of financial reporting, management
accounting and auditing issues in family firms, with some variations in terms of data employed
in the different subfields.
Empirical researchers in accounting – like all scholars who intend to study family firms –
face a challenge related to data availability. Indeed, data about family businesses are often pro-
prietary, due to the private nature of such firms. The problem is, to some extent, less relevant
when listed family firms are analysed, in which case at least financial statements and general
corporate governance data are publicly available. As a consequence, most financial reporting
studies are focused on listed family firms. Such studies are based on publicly available archival
data, which cover a range of firms in various countries, of different sizes, belonging to different
industries, and across different years. To operationalise family firms, these studies generally
track family relations through textual searches (e.g. in proxies filed with the Securities and
Exchange Commission, firm history collected from the LexisNexis/Hoovers databases, and
from firm websites and other miscellaneous information sources) in order to compile infor-
mation on family ownership and board composition. A critical element in these studies, for
appropriately identifying the degree of the family dimension, is the accuracy of the identified
information on family relations which – with multiple generations by blood and marriage –
may turn out to be complicated.8 An exception to these general observations is the paper by
Stockmans et al. (2010), who use survey data to examine earnings management by Flemish
family firms.
The identified management accounting studies, in contrast, use mostly survey data and in a
few instances case study analyses. These types of data appear to fit well the nature of the research
questions addressed, which typically require information that is not publicly available, and is
difficult to collect otherwise than through primary research methods. The degree of family invol-
vement in these studies is either inferred from responses to survey questions on stock ownership
and board membership, or is determined up front in the selection of suitable survey respondents
or case study firms.
Finally, the few empirical auditing studies on family firms are mixed in their use of data, as
they employ survey data, publicly available archival data, or a mix of publicly and non-publicly
available data.
In short, two types of empirical data appear to dominate the accounting literature on family
firms. First, archival data are widely used, and most prominently in financial accounting
studies, which is not surprising given the public availability of the data that allows researchers
to track family relations, stock ownership and board positions to form proxy measures of family
involvement and influence. Second, survey data are employed in all three subfields of account-
ing, which enable researchers to obtain more directly an assessment of family influence on the
one hand, and publicly unobservable accounting choices on the other hand. While not common
yet (with the exception of Stockmans et al., 2010), mixing archival and survey data may provide
interesting insights. Such a mixing of data may allow one, for instance, to triangulate or validate
8
In some archival studies, tracking is eased and threats to accuracy appear low, such as in the study of Weiss (2014)
among Israeli firms that are legally required to report family relations among all stakeholders, directors, and managers
as an integral part of the annual financial statements, and Hope et al. (2012), who obtain access to non-publicly available
data on family relations through the Norwegian National Register Office.
measures of family dimension or accounting choices and complement variable measures that are
uniquely observed through different data collection methods.
Somewhat surprisingly, our review also indicates that other methods commonly used in
accounting research are notably absent in the family firm research field. First, there seems to
be no analytical research among the selected papers. There may be a greater demand for analyti-
cal research on a variety of questions, which may contribute to the development of new testable
predictions. Second, there is a lack of experimental research. Experiments similarly appear to
have potential to fruitfully contribute to this research area. The family/non-family dichotomy
(or variations in degree of family control and influence) could easily be imagined to form an
experimental treatment for a range of accounting-related questions. Third, while our sample
includes two case studies, qualitative research seems significantly underutilised as well,
which approach has the potential to provide in-depth understanding of accounting phenomena
within family firms. In particular, given the emerging nature of accounting research in family
firms, qualitative research may provide exploratory insights that would be difficult, if not
impossible, to obtain through the other methods discussed.
5. Summary and Directions for Future Research

Family firms play a significant role in the global economy. Being aware of this fact, over the last
two decades academia has turned its attention to the family dimension as a determinant of
business phenomena, showing a continuous increase of interest over time. While family business
research has reached an age of ‘adolescence’ as a field of study, accounting in family firms still
appears to be an emerging area of research. The number of studies on accounting and reporting
issues in family companies has been growing at an accelerated rate during the last few years, but
there is still a long way to go before a similar status is reached as in other academic disciplines.
In an attempt to accelerate and support research in the field, in this article we illustrate the state
of the art and highlight theoretical and empirical challenges that accounting scholars need to take
into account when addressing issues related to accounting and reporting in family firms.
From a theoretical point of view, studies on accounting and reporting issues in family
businesses have mostly adopted an agency theory perspective, probably due to the fact that
agency theory has traditionally been the dominant framework in accounting research. Only a
limited number of contributions have used alternative (or complementary) theories such as
the stewardship theory or the SEW theory, which give prominence to noneconomic factors
that shape family firms management. We believe that it is from the adoption of these different
perspectives – by themselves or in combination – that new and original contributions will likely
come in the future. In particular, considering the richness of the field and the diversity of research
questions to be addressed, a pluralistic view towards theory may be much desired.
From an empirical point of view, one of the main challenges that scholars face is the definition
of family firms. Accounting researchers have mainly adopted an ‘involvement approach’ to
define family firms. This approach has been translated, in most cases, into rather simplistic
classifications, aimed at distinguishing family from non-family firms. From this point of
view, accounting research on family firms is still dawning. More needs and can be done to inves-
tigate accounting and reporting issues in relation to different levels and forms of family influence
among family firms. In addition, accounting studies have been characterised – like other fields
within the management discipline – by the presence of heterogeneous operational definitions of
family firms. The variation in operational definitions used in accounting research hinders the
ability to draw inferences across studies and complicates the assessment of the stock of knowl-
edge related to accounting and reporting in family firms. On the other hand, different definitions
may represent a useful tool for capturing various facets of family firms and investigate their
effects on accounting and reporting decisions, as long as researchers clarify and justify in their
work (both conceptually and empirically) the adopted definition.
Regarding research methods applied, the accounting literature is dominated by the use of
archival data, especially in the financial accounting subfield and when the focus of the study
is on listed family firms. However, obtaining data may be a challenge when the focus is on
private family firms. Survey data are also used relatively frequently. Surprisingly, other research
methods commonly used in accounting research are notably absent in the study of accounting in
family firms. In particular, there seems to be no analytical research in the identified literature,
which may be highly desirable as this can contribute to the development of new testable predic-
tions. Moreover, there appears to be a lack of experimental studies and qualitative research. We
believe that both these research methods have the potential to contribute to a better understand-
ing of accounting phenomena within family firms. Also, a combination of different research
approaches may be useful to provide a greater depth and breadth than any individually
applied research method could.
In terms of research topics addressed in the extant literature, while contributions on financial
accounting and reporting issues in family firms have become more common over the last decade,
the same cannot be said about management accounting and auditing. On the basis of our review,
we believe, however, that there is much potential for fruitful research in all subfields of account-
ing. While our intention is by no means to be all-inclusive, we would like to offer some possible
directions for future work for each of these areas.
In the financial accounting subfield, there is still a lack of ‘market-based research’ on family
firms. It would be of interest to examine whether family control affects the way markets value
public accounting information and, consequently, liquidity and cost of capital. For example,
does the value relevance of accounting information differ for family-controlled companies?
How does new information affect liquidity and cost of capital around earnings announcements?
Another potentially interesting line of research could relate to the manner in which markets react
to chosen (or changes in) accounting policies by family firms. For example, how do family firms
differ from non-family firms in terms of impairment of assets or cost capitalisation? And to what
extent do they differ in terms of types of disclosure? It would be interesting to examine these
questions across various countries and, more in general, to investigate how family firm reporting
and disclosure policies differ among various international institutional settings.
The management accounting subfield is also characterised by many opportunities for original
and appealing research. It would be interesting to understand whether and to what extent internal
decision-making and control systems differ between family and non-family firms. For instance,
if accounting and control design are considered to have both decision control and decision facil-
itating purposes, do the characteristics of family firms cause them to ‘balance’ these purposes
differently? The question of differences with non-family firms could be addressed in many
ways, such as how family firms deal with capital budgeting, strategic and operational
decision-making, budgeting and accountability, performance measurement and evaluation. A
related issue concerns the nature of controls, in particular the implications of the (possibly)
different types and degrees of informal/social controls within family firms. For instance, do
family firms apply formal controls in a different manner, perhaps focused on different control
problems? Do family firms use different employee selection and socialisation practices to
build and maintain informal controls? Are family firms able to develop more consistent or effec-
tive ‘packages’ of controls than non-family firms? Or do their concerns for the preservation of
SEW result in ‘suboptimal’ control choices? Are non-family owners able to affect internal
accounting and control systems in order to ensure sufficient information provision for resolving
information asymmetry with family owners and managers, and to ensure alignment of family
interests with minority shareholders? Another direction that deserves more attention is how
management accounting and control are related to growth and change in family firms. How do
family firms support growth with management accounting and control instruments, and how
does that compare to evidence related to non-family firms? What are the impacts on management
control systems of ownership and/or management transition to a later generation?
Regarding broader issues of firm governance versus family governance, questions may be
addressed relating to how family councils and family constitutions influence decision-making
in family firms, and what the interrelations are between boards of directors and family councils.
Studies may also address issues on internal controls in family firms, such as whether the serving
of family members on the board of directors influences the effectiveness of control mechanisms
implemented, and whether they encourage or impede the implementation of internal controls.
Finally, many issues regarding incentive compensation in family firms remain open to be
addressed, such as differences in the level and structuring of compensation packages for
family CEOs or board members, whether the effects of incentive compensation differs for
family firms, and whether they differ between family versus non-family CEOs or managers.
Finally, regarding auditing research, interesting questions may include the impact of family
influence on auditing characteristics and the audit process. For example, what are the differences
between family firms and non-family firms in the demand for external and internal auditing? Are
there differences in auditor choice? Is there an impact on auditor independence and/or auditor
judgement? Is audit quality in family firms different to that in non-family firms? Do auditor prac-
tices, effort and audit fees or costs differ for family firms? Do investors and other stakeholders
respond differently to audit characteristics and judgements in family firms?
Overall, our belief is that accounting and reporting in family firms is an important and fertile
area for accounting research where much still remains to be achieved. Accounting scholars may
want to devote more attention and resources to this area to enhance our currently limited knowl-
edge of accounting and reporting in family firms, and bring this to a level that is more in line with
the dominant role of family firms in the global economy.
Acknowledgements
The authors wish to thank the Editor Salvador Carmona, an anonymous referee and the partici-
pants at the 2012 European Accounting Review Conference for useful comments and
suggestions.
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