The Dual-Edged Role of Family Control in Accounting Misconduct: Empirical Evidence from Japan

Dai, Xiayan

doi:10.51094/jxiv.1360

##article.authors##

Dai, Xiayan Waseda University, Graduate School of Commerce

DOI:

https://doi.org/10.51094/jxiv.1360

キーワード:

Accounting Misconduct、 Family Business、 Family Ownership、 Corporate Governance、 Socioemotional Wealth

抄録

Accounting misconduct remains a pervasive challenge in corporate governance. This study investigates how family ownership and board-level family involvement influence both the occurrence and detection of accounting misconduct in listed Japanese firms. Drawing on agency theory and the socioemotional wealth (SEW) perspective, and using data from 2015 to 2022, I apply a partially observable Bivariate Probit model to disentangle the latent processes of misconduct and its detection. Results reveal that while family ownership is associated with a lower observed incidence of misconduct, it also reduces the probability of detection. When controlling for detection bias, the underlying propensity for misconduct in family-owned firms appears higher, suggesting that concentrated control may enable opportunistic behavior while simultaneously concealing it. Moreover, family representation on the board further suppresses the likelihood of detection without significantly altering the underlying misconduct risk. These findings highlight the dual role of family governance as both risk-enhancing and risk-concealing. From a SEW perspective, families may prioritize legacy and internal harmony over transparency, thereby shielding wrongdoing from external scrutiny. This study underscores the importance of separating misconduct occurrence from its observability and cautions against relying solely on detected cases when evaluating ethical outcomes in family firms.

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The author declares that there are no conflicts of interest related to this study.

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The Dual-Edged Role of Family Control in Accounting Misconduct

Empirical Evidence from Japan