Family firms and the incentive contracting role of accounting earnings

We investigate how family controls affect the sensitivity of the variable pay of top management to the firm's accounting-based performance (PPS) in order to deal with both the traditional agency problem between owners and managers, and the central agency problem between controlling and minority shareholders. Using five-year data from Taiwan-listed firms, our results show that PPS is stronger for both non-family managers employed by family firms, and family managers, and is weakest for managers in non-family firms. Additionally, PPS is more pronounced in family firms with potential central agency problems, when the CEO is not a family member than when the CEO is.