Heterogeneity in Family Firm Finance and Accounting: The Role of Family Influence for Financial Decisions in Family Firms

Family firms represent a significant share of economies worldwide. Simultaneously, family business research output exhibits consistent growth, as documented by several recent reviews. Historically, family business research has been largely dominated by comparative analyses between family and non-family firms, pointing towards the unique organizational characteristics of family firms.

In the recent years, the theme of family business heterogeneity which more strongly emphasizes the intra-group differences among family businesses is gaining momentum. This perspective shall guide the research project by asking how considerations of heterogeneity affect finance and accounting outcomes in family businesses. For instance, financing decisions in family business have been associated with various family-specific antecedents, e.g., aversion towards risks of losing of control. Likewise, accounting variables such as financial reporting quality or tax avoidance have amongst others been studied in the context of reputational concerns and socio-emotional (non-financial) considerations.

Overall, the research project shall explore dimensions of family business heterogeneity and their effect for family business finance and accounting outcomes. Based on quantitative methods the project shall further explore some of these dimensions in more detail.

Assessment of tax avoidance in association with CSR- and Country-by-Country-Reporting

In recent years, a series of data leaks and media reports on low tax rates of internationally active companies have created the impression that aggressive tax avoidance is a widespread corporate practice and causes significant harm to the public. In this context, taxes are increasingly coming into focus, not only from a public perspective, but also from a research and regulatory perspective, as a tool to achieve various economic and corporate sustainability goals.

In response, OECD countries have launched the Base Erosion and Profit Shifting (BEPS) initiative and have identified numerous tax avoidance practices to be eliminated in the future in order to achieve more sustainable economic activity. Furthermore, transparency with regard to the tax policy of companies is to be increased and thus the social pressure for sustainable tax policy is to be raised.

In the context of public reporting, in addition to the obligatory sustainability report of companies, there is also reporting within the framework of voluntary sustainability reporting, for example according to GRI 207 Tax, and within the framework of country-by-country reporting, which has so far only been available to the tax authorities, but which the EU Commission has proposed should also be publicly accessible from the year 2025.

The research project examines this triad of reporting in the context of tax avoidance or tax policy of companies and aims to elaborate concrete recommendations for action for research, practice, legislators and standard setters by examining in particular the quality of reporting and the qualitative differences between the various forms of reporting.

Integrated Reporting, Sustainability Reporting & Assurance

After the most recent financial crisis 2008-9, there has been a decline in trust of stakeholders in capital-market oriented reporting by corporations. As a result, traditional financial reporting should be complemented by corporate sustainability reporting, which would ideally be unified into integrated reporting.

While there has been considerable empirical research into CSR reporting, this is not yet the case for integrated reporting in the 2013-framework published by the International Integrated Reporting Council (IIRC). This research project examines the content elements investors demand and their relationship to the quality of integrated reporting in the German capital market.

Sustainable investors & ESG performance

Research towards sustainable financing and investing seeks to align the economic, social, and ecologic impact of corporate actions by emphasizing the relevance of a triple bottom line approach. Particularly after the financial crisis 2008/09, regulators, financial intermediaries, company executives, and further stakeholders are increasingly interested in the interdependencies between financial and non-financial performance of companies.

This research projects investigates the determinants of a more sustainable global financial system. Specifically, a major impetus is to understand the relevance of socially responsible investments (SRI) on corporate behavior.

There is a strong trend towards SRI in the private sector. Voluntary signatories to the United Nations-supported Principles for Responsible Investments (UN PRI) managed 68.4 trillion US-Dollar in assets in 2017. More institutional investors are incorporating ESG (Environmental, Social, and Governmental) issues into investment analysis and decision-making processes. In that regard, this project aims to understand the impact of SRI on the quality of non-financial disclosure and the economic performance of companies.

In March 2018, the European Commission adopted the action plan for financing sustainable growth drafted by the High-Level Expert Group (HLEG) on Sustainable Finance. The main objective of the European Commission is the reorientation of capital flows towards sustainable investments. In combination with the strong trend towards SRI in the private sector, this can lead to systemic changes in the European financial system, which substantiates the actuality and relevance of this research topic.   

Board Composition & (Gender) Diversity

Recently there have been a large number of reform efforts aiming at improving corporate performance by increasing board diversity. In addition to introducing the legal gender quota now at the focus of much political discussion, other diversity characteristics such as ethnicity or occupation, board independence and expertise are increasingly being studied in empirical research on corporate governance from an international viewpoint.

This research project board composition looks at the one tier and two tier system of corporate governance in Europe and studies the effects on the capital market.

Fair Value Accounting, Earnings Management and Corporate Governance

Fair Value Accounting has reached the spotlight in the field of recognition and valuation of assets and liabilities in the international empirical accounting research. By implementing IFRS 13 the standard setter has introduced the fair value hierarchy, which categorises fair values into three levels.

Critics question the objectivity of the valuation, especially in the case of third level fair values which are based on internal calculations. Recent studies have shown that third level fair values are less relevant to investors. However, the impact of corporate governance variables (e.g. board gender diversity) on the fair value valuation and the associated notes has not been examined in detail. Furthermore, the effect of third level fair values on the quality of external audit has not been answered in the empirical literature.

In the lights of the above, the research project will focus on the one hand on the analysis of the association of certain corporate governance factors with fair value accounting and on the other hand on the impact of fair values on audit quality.

Monitoring of Internal Corporate Governance Systems by Audit Committees, Internal Auditors and External Auditors

A critical debate of corporate governance structures in society, science and business has been evident for several decades. Both the financial crisis in 2008/2009 and various accounting scandals and corporate collapses since the 1990s can be cited as some of the significant causes for this discourse. The Wirecard scandal in 2020 once again severely damaged public trust in the economy, corporate management and their control and monitoring structures, prompting research and practice to question existing corporate governance structures and discuss potential reform measures. In addition, the aspect of integrating sustainability into corporate governance systems is increasingly becoming the focus of the public and legislators, which is being pushed at European level in particular by the EU's Green Deal project and the associated sustainable finance regulation.

The following three corporate governance authorities: audit committee, internal auditors and external auditors are often in focus in this context, as these three parties play a crucial role in monitoring of internal corporate governance systems and their interaction is therefore indispensable when it comes to the preventing misconduct in companies and associated accounting scandals or ESG violations.

The research project aims to investigate this three-sided network of relationships in the context of cooperative monitoring of internal corporate governance systems and to develop concrete recommendations for action for research, practice, legislators and standard-setters.