Impact of financial crisis and family control on earning management of Portuguese listed firms

  • Inês Lisboa School of Technology and Management, Management for Sustainability Research Centre, Polytechnic Institute of Leiria, Morro do Lena – Alto Vieiro, P.O. Box 4163, 2411-901 Leiria, Portugal
Keywords: Earnings management, Family firms, Accruals, Real activities, Financial crisis


Accounting information is used to evaluate the firm's financial performance. Although, firms may have incentives to engage in earnings management, misleading all stakeholders. This study aims to analyse earnings management behaviours of Portuguese listed firms. Both accrual-based and real activities of earnings management are analysed to draw an overall picture of earnings management’ strategies. Most studies focused only in discretionary accruals as a proxy for earnings management, since cash flow-based earnings management is more difficult to detect. Although both strategies can be complementary instead of substituting. Moreover, the impact of financial crisis, family control, and firm characteristics is taken into account. Previous literature found that 2008 crisis had impact on earnings management as firms want to meet debt covenants and investors’ expectations. Moreover, family firms also impact the magnitude of earnings management. While some researchers found a negative relationship since managers are highly controlled, others found the opposite relationship because the family may want to maximize their own wealth. Analysing 51 listed firms, from 2003 till 2015, results show that firms engage more in earnings management during crisis, when the firm's financial situation is less stable. In addition, accrual-based earnings management is higher in family firms than in non-family ones, suggesting less quality of information in the first group. Due to less control of family firms, the family may expropriate minority investors’ wealth to increase personal benefits. Finally, the impact of firms’ characteristics on earnings management depends on the proxy of earning management analysed, suggesting that firms use accrual or real-activities earnings management depending on its purposes.


Achleitner et al., 2014

A. Achleitner,N. Günther,C. Kaserer,G. Siciliano

Real earnings management and accrual-based earnings management in family firms

European Accounting Review, 23 (2014), pp. 431-461

Alves, 2011

J. Alves

Ensaios sobre Relações entre a Manipulação dos Resultados Contabilísticos e o Financiamento das Empresas

Faculdade de Economia da Universidade do Porto, (2011)

(Tese de Doutoramento em Ciências Empresariais)

Alves, 2014

L. Alves

Análise da Manipulação de Resultados antes e após a adoção do Sistema de Normalização Contabilística


Dissertação de mestrado em Contabilidade e Finanças do Instituto Politécnico de Viana do Castelo

Alves, 2012

S. Alves

Ownership structure and earnings management: Evidence from Portugal

Australasian Accounting, Business and Finance Journal, 6 (2012), pp. 57-74

Anderson and Reeb, 2003

R. Anderson,D. Reeb

Founding-family ownership and firm performance: Evidence from the S&P500

Journal of Finance, 58 (2003), pp. 1301-1328

Anderson and Reeb, 2004

R. Anderson,D. Reeb

Board composition: Balancing family influence in S&P 500 firms

Administrative Science Quarterly, 49 (2004), pp. 209-273

Beneish, 1999

M. Beneish

The detection of earnings manipulation

Financial Analysts Journal, 55 (1999), pp. 24-35

Cascino et al., 2010

S. Cascino,A. Puguliese,D. Mussolino,C. Sansone

The influence of family ownership on the quality of accounting information

Family Business Review, 23 (2010), pp. 246-265

Chen et al., 2006

G. Chen,M. Firth,D. Gao,O. Rui

Ownership structure, corporate governance, and fraud: Evidence from China

Journal of Corporate Finance, 12 (2006), pp. 424-448

Chen et al., 2015

T. Chen,Z. Gu,K. Kubota,H. Takehara

Accrual-based and real activities based earnings management behavior of family firms in Japan

The Japanese Accounting Review, 5 (2015), pp. 21-47

Cheng et al., 2013

C. Cheng,J. Johnson,C. Liu

The supplemental role of operating cash flows in explaining share returns: Effects of various measures of earnings quality

International Journal of Accounting and Information Management, 21 (2013), pp. 53-71

Chia et al., 2007

Y. Chia,I. Lapsley,H. Lee

Choice of auditors and earnings management during the Asian financial crisis

Managerial Auditing Journal, 22 (2007), pp. 177-196

DeAngelo, 1986

L. DeAngelo

Accounting numbers as market valuation substitutes: A study of management buyouts of public stockholders

The Accounting Review, 61 (1986), pp. 400-420

Dechow et al., 1995

P. Dechow,R. Sloan,A. Sweeney

Detecting earnings management

The Accounting Review, 70 (1995), pp. 193-225

Dechow et al., 1996

P. Dechow,R. Sloan,A. Sweeney

Causes and consequences of earnings manipulation: An analysis of firms subject to enforcement actions by the SEC

Contemporary Accounting Research, 13 (1996), pp. 1-36

DeFond and Jiambalvo, 1994

M. DeFond,J. Jiambalvo

Debt covenant violation and manipulations of accruals

Journal of Accounting and Economics, 17 (1994), pp. 145-176

Dutzi and Rausch, 2016

A. Dutzi,B. Rausch

Earnings management before bankruptcy: A review of the literature

Journal of Accounting and Auditing: Research & Practice, (2016),


ID 245891

Erickson and Wang, 1999

M. Erickson,S. Wang

Earnings management by acquiring firms in stock for stock mergers

Journal of Accounting and Economics, 27 (1999), pp. 149-176

Gomez-Mejia et al., 2014

L. Gomez-Mejia,C. Cruz,C. Imperatore

Financial reporting and the protection of socioemotional wealth in family controlled firms

European Accounting Review, 23 (2014), pp. 387-402

Gomez-Mejia et al., 2007

L. Gomez-Mejia,K. Haynes,M. Nuñez-Nickel,K. Jacobson,J. Moyano-Fuentes

Socioemotional wealth and business risks in family controlled firms: Evidence from Spanish Olive Oil Mills

Administrative Science Quarterly, 52 (2007), pp. 106-137

Gomez-Mejia et al., 2003

L. Gomez-Mejia,M. Larraza-Kintana,M. Makri

The determinants of executive compensation in family-controlled public corporations

Academy of Management Journal, 46 (2003), pp. 226-237

Healy, 1985

P. Healy

The effect of bonus schemes on accounting decisions

Journal of Accounting and Economics, 7 (1985), pp. 85-107

Healy and Wahlen, 1999

P. Healy,J. Wahlen

A review of the earnings management literature and its implications for standard setting

Accounting Horizons, 13 (1999), pp. 365-383

Hu et al., 2015

N. Hu,Q. Cao,L. Zheng

Listed companies’ income tax planning and earnings management: Based on China's capital market

Journal of Industrial Engineering and Management, 8 (2015), pp. 417-434

Iatridis and Dimitras, 2013

G. Iatridis,A. Dimitras

Financial crisis and accounting quality: Evidence from five European countries

Advances in Accounting, 29 (2013), pp. 154-160

Jensen and Meckling, 1976

M. Jensen,W. Meckling

Theory of the firm: Managerial behavior, agency and ownership structure

Journal of Financial Economics, 4 (1976), pp. 305-360

Jiraporn and DeDalt, 2009

P. Jiraporn,P. DeDalt

Does founding family control affect earnings management?

Applied Economics Letters, 16 (2009), pp. 113-119

Jones, 1991

J. Jones

Earnings management during import relief investigations

Journal of Accounting Research, 29 (1991), pp. 193-228

Kacharava, 2016

A. Kacharava

Impact of Financial Crisis on Earnings Management in Listed Companies of Portugal and UK


Master thesis in International Business do Instituto Politécnico de Leiria

Kim and Yi, 2006

Y. Kim,C. Yi

Ownership structure, business group affiliation, listing status, and earnings management: Evidence from Korea

Contemporary Accounting Research, 23 (2006), pp. 427-464

Koschtial and Franceschetti, 2013

C. Koschtial,B. Franceschetti

Do bankrupt companies manipulate earnings more than the non-bankrupt ones?

Journal of Finance and Accountancy, 12 (2013), pp. 1-22

Kothari et al., 2005

S. Kothari,A. Leone,C. Wasley

Performance matched discretionary accrual measures

Journal of Accounting and Economics, 39 (2005), pp. 163-197

La Porta et al., 1999

R. La Porta,F. Lopez-de-Silanes,A. Shleifer

Corporate ownership around the world

Journal of Finance, 54 (1999), pp. 471-517

Lambert, 1984

R. Lambert

Income smoothing as rational equilibrium behavior

The Accounting Review, 59 (1984), pp. 604-618

Leuz et al., 2003

C. Leuz,D. Nanda,P. Wysocki

Earnings management and investor protection: An international comparison

Journal of Financial Economics, 69 (2003), pp. 505-527

Miller et al., 2007

D. Miller,I. Breton-Miller,R. Lester,A. Cannella Jr.

Are Family Firms Really Superior Performers?

Journal of Corporate Finance, 13 (2007), pp. 829-858

Miralles-Marcelo et al., 2014

J. Miralles-Marcelo,M. Miralles-Quirós,I. Lisboa

The impact of family control on firm performance: Evidence from Portugal and Spain

Journal of Family Business Strategy, 5 (2014), pp. 156-168

Moreira and Pope, 2007

J. Moreira,P. Pope

Earnings management to avoid losses: A cost of debt explanation

Research Center on Industrial, Labour and Managerial Economics, (2007),

DP 2007-04

Peasnell et al., 2000

K. Peasnell,P. Pope,S. Young

Detecting earnings management using cross-sectional abnormal accruals models

Accounting & Business Research, 30 (2000), pp. 313-326


Persakis and Iatridis, 2016

A. Persakis,G. Iatridis

Audit quality, investor protection and earnings management during the financial crisis of 2008: An international perspective

Journal of International Financial Markets, Institutions & Money, 41 (2016), pp. 73-101


Pordata, 2016


Demografia das Empresas


Roychowdhury, 2006

S. Roychowdhury

Earnings management through real activities manipulation

Journal of Accounting and Economics, 42 (2006), pp. 335-370

Schipper, 1989

K. Schipper

Commentary on earnings management

Accounting Horizons, 4 (1989), pp. 91-102

Schmid, 2012

T. Schmid

Control considerations, creditor monitoring, and the capital structure of family firms

Journal of Banking and Finance, 37 (2012), pp. 257-262

Schulze et al., 2003

W. Schulze,M. Lubatkin,R. Dino

Exploring the agency consequences of ownership dispersion among the directors of private family firms

Academy of Management Journal, 46 (2003), pp. 179-194

Statistics, 2016

Statistics of Portugal Portal – INE. Retrieved from

Stockmans et al., 2010

A. Stockmans,N. Lybaert,W. Voordeckers

Socioemotional wealth and earnings management in private family firms

Family Business Review, 23 (2010), pp. 280-294

Watts and Zimmerman, 1986

R. Watts,J. Zimmerman

Positive accounting theory

Prentice-Hall Inc, (1986)

Xu and Ji, 2016

G. Xu,X. Ji

Earnings management by top Chinese listed firms in response to the global financial crisis

International Journal of Accounting and Information Management, 24 (2016), pp. 226-251

How to Cite
Lisboa, I. (2017). Impact of financial crisis and family control on earning management of Portuguese listed firms. European Journal of Family Business, 6(2).
Research article