Empirical Studies in Financial Accounting

Abstract The purpose of this research is to develop Caudillo's theory to appraise the strengthening levers of governance hegemony in family ownership. First, through a systematic screening process, the levers that enhance governance hegemony were identified. During the stages of fuzzy analysis, these levers were evaluated for reliability. The results from the qualitative phase indicate the existence of six levers that strengthen governance hegemony in family companies, as identified through the steps of fuzzy Delphi analysis. All dimensions were confirmed to be reliable. Furthermore, based on the credit check process, it was determined that the most favorable fuzzy analysis method, according to participants' scores, is the hierarchical fuzzy analysis using the TODIM approach.

Introduction

The governance system in company management is the foundation for monitoring the balance of interests between the company and its stakeholders. However, based on theories such as agency cost theory, this system can often be perceived as one-dimensional or opportunistic, particularly in the ownership structure of family-owned companies. In other words, governance mechanisms in family companies tend to prioritize the expansion of interests that may not necessarily align with the broader interests of the majority of stakeholders. This misalignment gradually exacerbates the representation gap in the capital market. Therefore, assessing how the concentration of power in such structures affects stakeholder expectations is a critical issue. Beyond past research, this evaluation takes a step forward by examining its dimensions at the market level within companies of this ownership nature.
 

Literature review

Caudillos, or supporters of Caudillo rule (Caudilloism), represent a type of political and governing party found in one-party government systems. These systems typically revolve around a government structure loyal to a central, powerful figure. The term “Caudillo,” derived from Spanish and meaning "powerful man", describes a leader who forms a management system populated by individuals aligned with their ideology. Over time, this governance approach often leads to discrimination and corruption within the administrative system. While the characteristics of Caudillo governance-such as the pursuit of power and suppression of opposing opinions-may not directly translate to the management structures of companies, drawing thematic analogies can highlight similarities between this political system and corporate governance. A concept closely resembling Caudilloism in corporate governance is family ownership, where power is typically concentrated among the relatives of the company’s founder. In such systems, decisions often aim to satisfy the interests of the central powerful figure, mirroring the dynamics of Caudilloism.
 

Methodology

This research is practical and through a developmental approach, aims to identify and determine the most significant lever to strengthen sovereign ownership in family-owned companies within capital market contexts, using Todim's fuzzy analysis. Given the incoherence of the theoretical framework, this research contributes to enhancing perceptual effectiveness through a developmental lens, both thematically and analytically. In terms of data type, this research falls into the category of mixed-method research, combining qualitative and quantitative analyses to describe and survey the research topic. The implementation strategy is based on mathematical models and operational research, categorizing it as analytical-mathematical research. Descriptive-analytical research involves not only illustrating what exists but also describing and explaining the reasons behind the situation, including the “how” and “why” of the problem and its dimensions. Such research requires strong argumentative support to explain and justify its findings. This support is achieved through an extensive review of the literature, theoretical discussions, and the development of leverage criteria and general propositions regarding the phenomenon under investigation. In the qualitative phase, meta-composite analysis is used to establish a solid foundation. The researcher logically connects the details of the research problem with its components, enabling meaningful conclusions to be drawn.
 

Finding

In this study, addressing the first research question regarding the levers to strengthen government ownership in family-owned companies, content analysis of research texts was conducted to identify evaluable dimensions. A Delphi analysis was then performed to assess the reliability of these dimensions within the Iranian capital market. The results from the qualitative phase indicated the existence of six levers. Subsequently, to address the second research question, fuzzy analysis based on TODIM was conducted to identify the most prominent dimension in this relationship. The results of the analysis revealed that the lack of independence of the board of directors is the most significant lever reinforcing corporate governance ownership in family-owned companies.
 

Discussion

The purpose of this research is to develop Caudillo's theory to appraise the governance hegemony levers in family ownership. Caudillo's theory outlines the structure of political governance in administration based on power-oriented processes, where individuals close to power are selected as leaders and tasked with overseeing executive affairs. Given that the structure of family-owned companies may follow a similar pattern, this research examines various aspects of the structural characteristics of companies with power-oriented ownership, specifically in the context of family ownership. In analyzing the results, it can be stated that family-owned structures often aim to maintain their power within the company. To achieve this, they tend to select board members who have close familial or interactive ties with the president or founder of the company. This ensures their influence over the company's decisions. Consequently, the independence of the board of directors in such companies is often compromised, which can lead to the allocation of bonuses to managers and an increase in information asymmetry.
 

Conclusion

The results of this study indicate that the management of companies is often influenced by the presence of individuals who may not necessarily possess expertise in management or effective decision-making. Their primary role is to ensure that the interests of those in power are safeguarded, even at the expense of other stakeholders. In family-owned companies, the ownership structure characterized by a higher proportion of non-independent members on the board of directors, can exacerbate conflicts of interest due to the lack of independence among board members. This imbalance, where non-independent members outnumber independent ones, creates a fertile ground for conflicts between the interests of the company and its shareholders, ultimately harming the interests of minority shareholders.

Abstract The purpose of this study is evaluation matrix of perspective on the driving forces of legacy accounting. In this study, in terms of the methodological goal, this study is exploratory and from the perspective of the result, it is placed in the category of applied research. The participants in the qualitative part include 12 academic experts and accounting professors who have professional experience in the field of accounting and financial reporting, and in the quantitative part 22 people from managers and board members of companies with the nature of family ownership in this study as a pairwise comparison they participated. The result of this study in the qualitative part indicated the existence of 3 categories, 8 components and 39 themes as drivers of legacy accounting in family ownership, which was confirmed based on Delphi analysis. Then, by choosing 2 factors out of 8 identified components as the basis of scenario creation, 10 themes identified as sub-factors of scenario creation were examined. The result of the acquisition in a quantitative part indicates the existence of 4 scenarios with a favorable situation, which shows that the scenario of the second quarter with the metaphorical title of "Governance Hegemony" was determined to be the most effective driver in the emergence of legacy accounting in family-owned companies.
 Introduction
Family-owned companies always face the assumption of opportunism at the level of the capital market from the point of view of market theorists and analysts, the reason for which is the large number of board members affiliated with the company owner or holding management positions in the decision-making structure of this type of companies (Sun et al., 2023). Assuming the acceptance of such an approach, it can be concluded that the method of financial functions and information disclosure is also done with the aim of covering the priorities of those in power in such a structure. Under such conditions, the violation of the rights of the beneficiaries can be considered the most important consequence of investing in these companies (Rezayee Pitenoei et al., 2021). Legacy accounting, as a term in such a structure with family ownership, can be considered a kind of practice in the shadow or parallel to the main accounting method of companies, which is used by the management of these companies to satisfy their opportunistic needs (De Wolf et al., 2020). In fact, legacy accounting is considered to be the result of a method of information disclosure that systematically prioritizes the interests of those in power over the interests of other shareholders. This is done in order to stimulate new investors to invest in the company's shares on the one hand and maintain the loyalty of current shareholders on the other. Additionally, it is used to secure their interests by providing cash for the development of investment plans and projects (Lloyd et al., 1999).

Literature Review

Legacy accounting aims to secure the interests of the majority of family owners by increasing the cost of minority shareholders, both in terms of money and share value (Wild, 2015). In fact, the interests of the majority of the shares, by increasing the members of family ownership through opportunistic accounting procedures, can deepen the conflict of interest between the internal owners (family owners) who control the company and external shareholders. This conflict of interest in legacy accounting procedures manifests in various ways, such as selling the company's products at a lower price to related people, hiring unqualified family members in the company, increasing the salary and benefits of family members, or showing an increase in tax payment. For example, companies often seek to minimize taxes, but some studies based on the accounting practices of family-owned companies show increased tax payments (Xia et al., 2017), as these companies aim to fulfill their financial obligations and seek to enhance their reputation by promoting social responsibility.

Methodology

When designing the model, it is crucial to consider the execution method, ensuring that the phenomenon under investigation lacks an integrated framework and coordination within the target society, at least in terms of content. Therefore, given the lack of necessary theoretical coherence of the concept of legacy accounting within family-owned companies, as discussed in the theoretical foundations and introduction, this research is categorized as developmental research in terms of the result. The research approach of the current study, in terms of data collection logic, is of a hybrid type. This is because it explores a phenomenon for which there is no comprehensive framework in the theoretical areas of legacy accounting at the level of capital market functions, or where consensus is lacking. Therefore, the analysis of the qualitative part and the reliance on the data theory method are used to present the dimensions of the legacy accounting model as a multidimensional model.
For this purpose, Glaser's (1992) emergent approach is used to develop the legacy accounting model through three stages of coding by using interviews with experts. In this approach, the theory emerges from the data, and researchers do not have presuppositions regarding the relationship between the data from the beginning. Additionally, based on the emergent foundation data theorizing strategy, data analysis begins simultaneously with the interviews (Kolayeanmoghadam et al., 2020). In terms of the purpose, this research fallswithin the category of exploratory studies conducted using both quantitative and qualitative models. The present study employs various research methods to address the formulated questions, tailoring each method to the specific needs of the respective department. Therefore, based on the nature of collection, this study can be classified as mixed research. Thus, different methods are employed for data collection and analysis at each stage of this study's analytical processes.
 

Result

This research, by undertaking through three main steps in the theoretical analysis of foundational data including open coding, selective coding, and core coding, seeks to explore the concept of heritage accounting development based on a theoretical framework. Through 12 interviews conducted across three stages of open coding, central coding, and selective coding, a total of three categories, eight components, and 39 conceptual themes were identified. These dimensions were determined after Delphi analysis to ensure reliability. Next, aiming to formulate future scenarios for evaluating the driving forces behind the development of legacy accounting in family ownership, the most effective axes for this evaluation were determined using the Micmac matrix by identifying the inputs and outputs of the matrix model. As a result, this section confirmed governance opportunism and behavioral opportunism as the primary driving factors influencing legacy accounting in family-owned companies. Subsequently, through the reciprocal matrix, scenarios describing the driving forces in the emergence of this accounting practice were determined.

Conclusion

The term hegemony means the dominance of a group of power holders over others. The extension of this concept to the mechanism of governance refers to the fact that a powerful person as an owner, in an effort to protect their interests, tries to make arbitrary appointments based on the level of loyalty to the person in power. Decisions should be made solely to achieve the goals and visions set by the powerful person. In this governance structure, while the size of the board of directors may adhere to rules and requirements, the absence of conflict of interest and diversity of views within the board compromises its ability to effectively monitor the company's operations, leading to decisions primarily aligned with the owner's objectives. In such structures, the board of directors often lacks the necessary independence to make decisions contrary to the opinions of those in power. Instead, they merely symbolically apply external supervision to maintain market stability. In general, the scenario of hegemonic governance shows the promotion of the dominant values and culture of the power holders in a company, which is a model of the pervasive dominance of their ideas and opinions over the entire company. Additionally, this result indicates that legacy accounting within such a regulatory process serves as an instrumental approach, a lever to advance governance goals in family companies. By selectively disclosing news and information to stakeholders, it seeks to protect the interests of these individuals or the so-called powerful person

Abstract According to the of alignment and entrenchment theories, the CEO power may lead to a reduction audit fees by increasing the earning quality and reducing audit risk, or through opportunistic earnings management and fraudulent financial reporting can lead to increased agency problems and audit risk, and ultimately to increased audit fees. Therefore, the purpose of the this study is to investigate the relationship between CEO power and audit fees and study the moderating effect of family ownership on this relationship with respect to alignment and entrenchment theories. To test the research hypotheses, the financial information of 88 companies listed on the Tehran Stock Exchange in the period between 2012 to 2019 has been used. The results of statistical tests show that there is a negative and significant relationship between CEO power and audit fees. In addition, the results showed that family ownership also moderated and exacerbated the relationship between CEO power and audit fees.