AUTOR: 002-2-01.

07
Family Ownership and Firm non-manipulated Performance in Chile: How
robust is the evidence from Bonilla et al.
Extended Abstract

Bonilla, Sepulveda and Carvajal (2010) show that even when controlling for risk,
Chilean family-owned firms, listed in the countries stock market, perform better than
non-family ones. They advance some hypothesis that could explain it, however, other
than theoretically it is not clear why that may be the case.
Here we test whether the fact that some firms may manipulate their earnings may
affect the results. Thus we extend the evidence presented in Bonilla et al. (2010) by
using ROA adjusted earnings management measures. Using the same dataset and
Blundell and Bond's System GMM estimator technique to deal with the potential
endogeneity problems, we estimate a pre-manipulated ROA measure, the results of
the Bonilla et al. (2010) study are found to be partially robust since pre-manipulated
performance of family-controlled firms continues to be superior, but AFP's
ownership has a positive influence on performance where Bonilla et al. does not find
a relationship. The results suggest that earnings management behavior is not a
sufficient factor that can conduce to a relative superior performance of familycontrolled firms.
We also add the risk dimension using a pre-manipulated risk-adjusted ROA variable,
and family-controlled firms again performed better.
Recent evidence on earnings quality shows that family firms in the United
States have greater quality information about earnings compared with nonfamily firms

(Ali et al., 2007; Wang, 2006). Additionally, the managerial power within family firms
improves the informational content of earnings because highly skilled managers are
better able to interpret earnings components to predict future cash flows and, thus,
manage earnings less.
Recent evidence outside the United States shows that family firms convey
financial information of higher quality compare to nonfamily firms (Cascino et al.,
2010; Mei-Ling, 2010; Prencipe et al., 2008). Using a sample of Italian firms, Prencipe
et al. (2008) found that family firms are less sensitive to income-smoothing
motivations than their nonfamily counterparts. Cascino et al. (2010) reported
consistent results by showing that Italian family firms exhibit, on average, higher
accounting quality compared to nonfamily firms. Similarly, Mei-Lings (2010) results
for a sample of Taiwanese firms suggest that family firms promote information
transparency and quality of accounting reporting to avoid negative implications
associated with the possible expropriation of minority shareholders.
When shareholders rights are not well protected, the agency conflict between
large dominant shareholders and minority shareholders may be especially outstanding
in family firms due to the characteristics of family control (Faccio and Lang, 2002). In
particular, family control can be enhanced by the use of pyramidal structures or some
indirect ownership to expand the divergence between control and cash flow rights. As
a result, the risk of expropriation of minority shareholders by controlling family
shareholders increases (Claessens and Djankov, 2002; Cronqvist and Nilsson, 2003;
Maury, 2006). In fact, Leuz et al. (2003) found that in countries with poor legal
protection and high ownership concentration, managers are better able to engage in

earnings management. Chiang and He (2010) also reported that Taiwanese familycontrolled boards of directors reduce corporate transparency.
We estimate abnormal accruals through the Jones (1991) model adjusted by return on
assets (Kothari et al., 2005). The dependent variable is total accruals (A), defined as the
difference between the earnings before the extraordinary items (E; Compustat item
123), and cash flow from the operations (CFO; item 309). As explanatory variables,
t1 and t; gross
property, plant, and equipment (GPPE) as the total fixed asset (item 7); and ROA. To
avoid problems of heteroskedasticity, all the variables are scaled by average total
assets. We base our choice of the Jones model with ROA as a regresor (Kothari et al.,
2005) on the tests of specification and power. Thus, DAJROA is the estimated
discretionary accruals from the country-year-sector estimation of equation (1). As
usual, we use the absolute value of the discretionary accruals, ABSDAJROA.
Some Results
Table 4
Panel A: Difference of means test for ROA, ROAPRE and DAJROA of

family-controlled firms and non-family ones.

Means
Family
Nonfamily
ROA
ROAPRE
DAJROA
ABSDAJROA

4.88%
4.67%
0.21%
0.40%

3.96%
3.24%
-0.72%
0.51%

Statistics
t Significance
level
1. 6832
0.0406
1. 7442
0.0462
2.2905
0.0111
0.7059
0.2402

Panel B: Difference of means test for ROA, ROAPRE and DAJROA of

pension funds ownership participation firms and non-pension funds

ones.

Means
Pension
Non-pension
Funds
Funds
ROA
ROAPRE
DAJROA

6.39%
6.26%
0.13%

2.61%
2.85%
-0.23%

Statistics
t Significance
level
6.2715
4.7791
0.9618

0.0000
0.0000
0.1682

Panel C: GMM System-Estimator results of family's influence on

Discretionary Accruals.
Variable

DAJROA

DAJROA

DAJROA

DAJROA
-0.0019
(-0.70)
-0.0057
(-2.78)***
-0.0030
(-1.44)
0.0262
(3.49)***

Size

Dfamily

0.0544
(4.73)***

0.0627
(3.47)***

-0.0018
(-0.77)***
-0.0065
(-2.73)***
-0.0004
(-1.05)
0.0227
(3.52)***

Temporal
Effect
Sectorial
Effect

No

Yes

No

Yes

Yes

Yes

Yes

Yes

Auto(2)
z1

1.46
3.50
(16)***
3.65
(15)***
14.42
(17)
1646

1.37
26.17
(25)***
2.12
(24)***
18.53
(17)
1646

1.12
26.47
(19)***
8.66
(15)***
50.34
(49)
1646

1.30
35.06
(28)***
11.33
(24)***
50.21
(48)
1646

Age
Debt/Assets

z2
Hansen test
Obs

Table 4 shows a difference of means test for ROA and the manipulated
counterparts. It can be observed that Family firms show better performance
even when using pre-manipulated returns. Furthermore, the results remain
when adjusting by risk.

Table 6 shows the result of the estimation. It can be seen that the performance of
family-owned firms is still higher than non-family ones as found by Bonilla et al.
(2010).
Table 6
GMM System-Estimator results of Model 2
Variable

ROA

ROA

ROA

ROAPRE

ROAPRE

ROAPRE

Size

0.0340
(7.47)***
0.0060
(1.25)
-0.0009
(-2.41)**
0.0625
(4.73)***

0.0364
(5.68)***
0.0001
(0.02)
-0.0009
(-2.13)**
0.0478
(2.83)***

0.0342
(6.96)***
0.0006
(0.13)
-0.0007
(-2.02)**
0.0296
(1.82)*
0.0492
(5.53)***

0.0406
(6.43)***
0.0043
(0.73)
-0.0011
(-2.45)**
0.0151
(1.77)*

0.0467
(6.33)***
0.0012
(0.22)
-0.0011
(-2.04)**
0.0149
(1.79)*

0.0408
(6.18)***
0.0021
(0.49)
-0.0010
(-2.34)**
0.0180
(2.21)**
0.0125
(1.81)*

Temporal
Effect
Sectorial
Effect

No

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Yes

Auto(2)
z1

1.32
17.45
(19)***
10.95
(15)***
46.83
(49)
1646

1.48
36.15
(28)***
15.22
(24)***
45.19
(48)
1646

1.52
29.36
(29)***
10.19
(24)***
51.61
(57)
1646

0.40
16.15
(19)***
9.09
(15)***
52.72
(49)
1646

0.41
20.45
(28)***
8.22
(24)***
51.40
(48)
1646

0.41
49.68
(29)***
12.35
(24)***
55.70
(57)
1646

Age
Debt/Assets
Dfamily
DAFP

z2
Hansen test
Obs

**: Significance level between 5% and 10%, ***: Significance level < 1%.

The findings imply that the result that Chilean listed family firms perform better than
their non-family counterpart are robust to different econometric methodology and to
different measures and manipulations of their earnings.

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