Does Founder Domination Influence Earnings Management Decisions in Family Businesses?

Manuscript type: Research paperResearch aims: This study examines the influence of founder Dominationon Real Earnings Management (REM) in Indonesian family firms, witha particular focus on the moderating effect of firm-level hazard on thisrelationship.Design/Methodology/Approach: The sample comprises family businessesin Indonesia’s manufacturing sector from 2022 to 2024. ModeratedRegression Analysis (MRA) tests the hypotheses.Research findings: The results indicate that founder-led family firms,or those with founders serving as CEOs, exhibit higher Real EarningsManagement (REM) levels. High business risk increases REM in familyfirms. Family firms in Indonesia’s manufacturing sector tend to employAccrual Earnings Management (AEM) and REM as substitutes.Theoretical contribution/Originality: This study frames the SocioemotionalWealth (SEW) trade-off within the Indonesian cultural contextof paternalistic leadership and concentrated ownership. It providesempirical evidence that the “Founder Domination” is not static but iscontingent upon the firm’s business risk.Practitioner/Policy implications: It is suggested that the regulators andauditors should increase scrutiny of operational activities (REM) duringstable periods, as founders may use these as “substitutes” for moredetectable accrual-based management. For investors, the results highlightthat a founder’s commitment to longevity acts as a natural constraint onopportunistic earnings management during financial crises.