Philippine E-Journals

Family Governance, Earning Quality, and Firm Performance in Indonesian Listed Firms

Nurmala Ahmar | Bambang Subroto | Sutrisno Sutrisno | Rosidi Rosidi

Discipline: Business

 

Abstract:

This research aimed to analyze family firm governance, earning quality, and firm performance of manufacturing companies listed on the Indonesia Stock Exchange. This study also investigated the mediating effect of earning quality on the effect of family governance toward firm performance. Earning quality is measured by earning persistence, earning predictability, earning smoothness, and accrual quality. Firm’s performance is measured by market performance in Tobin-q and operational performance in return on asset. This research used pooled data in which earning persistence and earning predictability need 11 until 16 years observations, earning smoothness needs 2 until 7- year-observations, and accrual quality needs 12 years observations. The hypotheses testing used path analysis. To find empirical evidence, the main hypothesis testing was done by testing 16 sub-hypotheses. The mediating role of earnings quality was proved by the measurement of earnings persistence, earnings predictability, and quality of accruals. The role of earning quality on the effect of family governance toward firm performance is confirmed. The results show, as much as 6 sub – hypotheses support the main hypothesis. This study finds the empirical evidence of the role of earning quality on the effecf of family governance reflected in the involvement of family in board of commisioner toward firm performance (Tobin-q, ROA).