Organizational structure and earnings quality of private and public firms

  • Massimiliano Bonacchi
  • Antonio Marra
  • Paul ZarowinEmail author


We examine how heterogeneity in organizational structure affects private firm earnings quality in the European Union. Organizational structure refers to whether the firm is organized as a single legal entity (standalone) or as a business group. Private firms can be organized either way, while public firms are de facto groups. Even though private firms are not affected by market forces, we show that private business groups face greater stakeholder pressure for earnings quality than do standalone firms, while standalone firms have stronger tax minimization incentives. Due to these differences in nonmarket forces, private business groups have higher earnings quality than standalone firms. This heterogeneity among private firms is an important unexplored factor in the study of private firms, affecting the comparison between public and private firm earnings quality. We find that overall, public firms have higher earnings quality than private firms but this relation reverses when we control for nonmarket forces by examining business groups only.


Private firms Business groups Standalone Stakeholder incentives, Earnings quality Non-market forces 

JEL classification

D22 G15 G32 K22 M41 



We thank seminar participants at Bocconi University, NYU – Stern School of Business, University of Padova, Temple University Accounting Conference, 2017 IAS – AAA Midyear conference in Tampa, 2018 EAA conference in Milan, 2018 Berlin Annual Accounting Conference, and 2018 AAA conference in Washington DC for their constructive feedback. Prior versions of the paper were circulated under the title: “Earnings quality of private and public firms: business groups versus standalone firms.” We are grateful to Donal Byard, Claudia Curi, Lucie Courteau, April Klein, Christian Leuz (our EAA discussant), Garen Markarian, Maurizio Murgia, Annalisa Prencipe, Peter Pope, Ron Shalev, and Hong Xie (our AAA discussant) for helpful comments and suggestions. We are also especially thankful to Claudia Marangoni for her superb research support. Errors remain our own.


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Authors and Affiliations

  1. 1.Faculty of Economics and ManagementUniversity of BolzanoBolzanoItaly
  2. 2.Bocconi UniversityMilanItaly
  3. 3.Stern School of BusinessNew York UniversityNew YorkUSA

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