Financial Reporting in Family Firms: Insights from Interviews with CFOs
Based on interviews with CFOs, I report how financial reporting is organized within family-owned firms in Germany, who are its main addressees, how the CFOs define accounting quality, whether and how they manage earnings, how the owner families influence financial reporting, and what costs arise from financial reporting and disclosure. Financial reporting structures and processes vary widely across the sample firms. However, almost all CFOs agree that the requirement to disclose financial statements publicly is a burden that they bear unwillingly, most providing only the minimum content necessary and disclosing the statements as late as possible. As regards ‘financial statement quality’, most CFOs expressed a strong preference for formal correctness, but they also value sustainability, persistence, and conservative estimation of net income. Most CFOs regularly engage in earnings management, above all to achieve a continuous positive trend in net income, but also to ensure compliance with debt covenants. The influence of the owner families on financial reporting differs depending on whether family members are involved in firm management and on their education in and affinity with financial reporting. However, in most cases the family owners at least ‘set the tone’ for the firms’ reporting.