This paper investigates the relationship between family firm and earnings management. I also examine the possible moderating effects of independence of directors/commissioners and external audit on the family firm-earnings management relation. The sample comprises 384 companies listed in Indonesian Stock Exchange (IDX) and covers from 2014 to 2017.
I first find that Indonesian family firms during the sample period are less likely to engage in earnings management. The results are consistent with the notion that Indonesian family firms consider earnings management could exacerbate the transparency of financial statements, which may hurt the reputation of or their stability in controlling the firm. The results are also likely driven by such firms tend to have long-term orientation because they desire to pass the ownership to the next generation.
Further, I find a moderating impact of independent director on the family firms-earnings management relation; however, the finding is not consistent with my hypothesis. Specifically, I find family firms with a fewer independent directors are less likely to engage in earnings management. I also find a higher percentage of independent directors sitting in the board tend to avoid earnings management to a greater extent but it is not significant. The findings indicate that the monitoring function exercised by independent directors in the family firms become less important in constraining earnings management as the managers are family members who are more concern about long-term success and shareholder interests of the firm.
Moreover, I do find a moderating effect of independent commissioners on the family firms-earnings management relation, suggesting independent commissioners play some role in monitoring the firm’s earnings management practices. Specifically, I find family firms with higher percentage of independent commissioners sitting on the board are less likely to manage their earnings.
Finally, I find external auditors demonstrate limited power in monitoring family firms' earnings management behavior. Namely, Indonesian family firms are less likely to participate in earnings management practices regardless of whether the company are audited by big-4 or non-big 4 Certified Public Accountant (CPA) firms.

This paper investigates the relationship between family firm and earnings management. I also examine the possible moderating effects of independence of directors/commissioners and external audit on the family firm-earnings management relation. The sample comprises 384 companies listed in Indonesian Stock Exchange (IDX) and covers from 2014 to 2017.
I first find that Indonesian family firms during the sample period are less likely to engage in earnings management. The results are consistent with the notion that Indonesian family firms consider earnings management could exacerbate the transparency of financial statements, which may hurt the reputation of or their stability in controlling the firm. The results are also likely driven by such firms tend to have long-term orientation because they desire to pass the ownership to the next generation.
Further, I find a moderating impact of independent director on the family firms-earnings management relation; however, the finding is not consistent with my hypothesis. Specifically, I find family firms with a fewer independent directors are less likely to engage in earnings management. I also find a higher percentage of independent directors sitting in the board tend to avoid earnings management to a greater extent but it is not significant. The findings indicate that the monitoring function exercised by independent directors in the family firms become less important in constraining earnings management as the managers are family members who are more concern about long-term success and shareholder interests of the firm.
Moreover, I do find a moderating effect of independent commissioners on the family firms-earnings management relation, suggesting independent commissioners play some role in monitoring the firm’s earnings management practices. Specifically, I find family firms with higher percentage of independent commissioners sitting on the board are less likely to manage their earnings.
Finally, I find external auditors demonstrate limited power in monitoring family firms' earnings management behavior. Namely, Indonesian family firms are less likely to participate in earnings management practices regardless of whether the company are audited by big-4 or non-big 4 Certified Public Accountant (CPA) firms.

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