scholarly journals Auditor choice, audit fees and internal governance in family firms

2010 ◽  
Author(s):  
Shaohua HE
Keyword(s):  
Family Firms ◽  
Audit Fees ◽  
Internal Governance ◽  
Auditor Choice

The Effect of Governance on Specialist Auditor Choice and Audit Fees in U.S. Family Firms

2014 ◽  
Vol 89 (6) ◽  
pp. 2297-2329 ◽  
Author(s):  
Bin N. Srinidhi ◽  
Shaohua He ◽  
Michael Firth
Keyword(s):  
Financial Reporting ◽  
Family Firms ◽  
Earnings Quality ◽  
Agency Problem ◽  
Audit Fees ◽  
Data Availability ◽  
Board Governance ◽  
Auditor Choice

ABSTRACT Family firms are characterized by less separation between ownership and control (Type 1 agency problem), but greater conflict of interest between controlling insiders and non-controlling outside investors (Type 2 agency problem). Although strong board governance is known to decrease the Type 1 agency problem, its effectiveness in mitigating the adverse consequences of the Type 2 agency problem has not been well documented in the literature. We show that strongly governed family firms are more likely to choose specialist auditors and exhibit higher earnings quality than nonfamily firms. Weakly governed family firms demand lower audit effort and exhibit earnings quality that is no different from that of nonfamily firms. Within family firms, we show that strongly governed family firms choose higher quality audits in the form of a greater use of specialist auditors and higher audit efforts, and exhibit higher earnings quality than other family firms. These findings provide consistent evidence that strong board governance can effectively mitigate the adverse consequences of the Type 2 agency problem on financial reporting and transparency in family firms. Data Availability: The data used are available from the public sources identified in the study.

Auditor Choice and Audit Fees in Family Firms: Evidence from the S&P 1500

2013 ◽  
Vol 32 (4) ◽  
pp. 71-93 ◽  
Author(s):  
Joanna L. Ho ◽  
Fei Kang
Keyword(s):  
Family Firms ◽  
Agency Problems ◽  
Audit Fees ◽  
Additional Analysis ◽  
Audit Risk ◽  
Auditor Choice ◽  
Using Data

SUMMARY We examine auditor choice and audit fees in family firms using data from Standard & Poor's (S&P) 1500 firms. We find that, compared to non-family firms, family firms are less likely to hire top-tier auditors due to the less severe agency problems between owners and managers. Our results also show that family firms, on average, incur lower audit fees than non-family firms, which is driven by family firms' lower demand for external auditing services and auditors' perceived lower audit risk for family firms. Our additional analysis indicates that the tendency of family firms to hire non-top-tier auditors and to pay lower audit fees is stronger when family owners actively monitor their firms.

Family Ownership, Auditor Choice and Audit Fees: Evidence from Hong Kong

2018 ◽  
Vol 8 (1) ◽  
pp. 1
Author(s):  
Adrian C.H. Lei ◽  
Samuel W. K. Lam
Keyword(s):  
Hong Kong ◽  
Panel Data ◽  
Audit Committee ◽  
Family Firms ◽  
Audit Fees ◽  
Data Set ◽  
Family Control ◽  
Auditor Choice ◽  
Multiple Directorships ◽  
The Impact

Purpose –The primary purpose of this paper is to examine the impact of family control/ownership on auditor choice and audit fees in Hong Kong. Besides, this paper also addresses the impact of multiple directorship of audit committee members on these two external auditing dimensions.Design/methodology/approach –Panel data technique is used to perform analysis. The unbalanced panel data set consists of 2,724 firm-year observations for nine years from year 2001 to 2009.Findings –The results indicate that family firms have a higher likelihood to appoint Big 5 auditors, it supports the signaling hypothesis. Contrasting the perceived higher audit risk, they incur lower audit fees. The results also show the independent audit committee members with multiple directorships are not affected by their busyness. Our results are also robust to the alternative definition of family firms and by using the sub-sample within 2004 - 2009. We also find that the firms controlled by recognized Big family in Hong Kong society incur higher audit fees but no support for family firm incurring higher non audit fee.Originality/value–First, our paper responds to the recent call for research for auditor choice and audit fees within the context of emerging economies. Secondly, this paper also explores other determinants of auditor choice and audit fees in HK such as the characteristics of the audit committee and multiple directorships. Thirdly, our findings contribute to the family firms’ literature by shedding light on family firms do enhance their external auditing function to improve the credibility of financial reporting of the firms which is expected to help investors and public in HK to know more about the effect of family control on the external auditing to protect their interest. The findings in this paper are also valuable to regulators who might concern the corporate governance and informativeness in family firms. 

Family Firms and Auditor Choice: A Focus on IPO Firms

2011 ◽  
Author(s):  
Chun Keung (Stan) Hoi ◽  
Ashok Robin ◽  
Mithu Dey
Keyword(s):  
Family Firms ◽  
Auditor Choice

Family ownership and financial reporting quality: Iranian evidence

2018 ◽  
Vol 8 (3) ◽  
pp. 339-356 ◽  
Author(s):  
Mahmoud Mousavi Shiri ◽  
Mahdi Salehi ◽  
Fatemeh Abbasi ◽  
Shayan Farhangdoust
Keyword(s):  
Financial Reporting ◽  
Family Firms ◽  
Stock Exchange ◽  
Accounting Information ◽  
Reporting Quality ◽  
Audit Fees ◽  
Financial Reporting Quality ◽  
Family Ownership ◽  
Content Type

PurposeIn the process of reporting accounting information, the auditor’s objective is to detect possible misstatements and errors in accounting information. Audit evidence aids auditors in providing reasonable assurance about the quality of financial reporting. Studying the quality of family firms’ financial reporting is of higher importance relative to non-family firms due to lower risk of accounting manipulation. Therefore, the purpose of this paper is to examine the relationship between family ownership structure and financial reporting quality from an auditing perspective.Design/methodology/approachTo analyze the research hypotheses, the authors use a sample data consisted of 221 companies listed on the Tehran Stock Exchange (including 52 family and 169 non-family firms) over a five-year span from 2011 to 2015.FindingsUsing multivariate regression analysis of panel data, our results indicate that audit risk in family firms is lower than their counterparts. Likewise, the findings are indicative of lower audit fees paid by family firms as compared to non-family ones. The authors also find that auditors put more effort in family firms and thus audit effort is more significant for these kinds of firms.Originality/valueThe study focuses on family ownership and financial reporting quality in a developing country like Iran and the results of the study may be beneficial to other developing nations, as Iran stock market possesses some unique features which are not normally prevailing in other equity markets, even in the Middle East.

The Large Audit Firm Fee Premium: A Case of Selectivity Bias?

2002 ◽  
Vol 17 (1) ◽  
pp. 73-91 ◽  
Author(s):  
Jen C. Ireland ◽  
Clive S. Lennox
Keyword(s):  
Adverse Selection ◽  
Selection Bias ◽  
Audit Fees ◽  
Selectivity Bias ◽  
Big 5 ◽  
Audit Firm ◽  
Auditor Choice ◽  
Audit Firms ◽  
Audit Fee ◽  
Analytical Research

Audit fee studies often find large (Big 5) audit firms earn significantly higher fees than small (non-Big 5) firms, but they treat auditor choice as exogenous. In contrast, this paper takes into account that companies are not randomly assigned to audit firms. We find the effects of auditor selection bias on audit fees are statistically and economically significant. Consistent with the predictions of analytical research, our results suggest large (small) audit firms experience advantageous (adverse) selection in attracting high (low) quality companies. Our results indicate the premium earned by large audit firms is more than twice as large when selectivity effects are taken into account (53.4% compared to 19.2%).

Client Acceptance and Engagement Pricing following Auditor Resignations in Family Firms

2016 ◽  
Vol 35 (4) ◽  
pp. 137-158 ◽  
Author(s):  
Samer Khalil ◽  
Mohamad Mazboudi
Keyword(s):  
Ownership Structure ◽  
Family Firms ◽  
Audit Fees ◽  
Audit Pricing ◽  
Pricing Decisions ◽  
Big 4 ◽  
Professional Manager ◽  
Financial Restatements ◽  
The Family ◽  
Client Acceptance

SUMMARY This paper investigates whether auditors' client acceptance and pricing decisions following the resignation of the incumbent auditor in family firms are significantly different from those in non-family firms. Relying on the auditing literature (client acceptance and audit pricing) and using insights from the agency theory, we document that successor auditors incorporate a firm's ownership structure into their acceptance and pricing decisions following the resignation of the incumbent auditor. Big 4 auditors are more likely to serve as successor auditors following auditor resignations in family firms as opposed to non-family firms. The changes in audit fees following auditor resignations in family firms, however, are significantly smaller than those in non-family firms. These results hold when we account for whether a family firm is managed by a founder, a descendant, or by a professional manager, and when we use the percentage of shares held by the family members as another proxy for family ownership. Additional analysis further demonstrates that the likelihood of financial restatements in family firms in the post-resignation period are significantly lower than those in non-family firms. Overall, our findings suggest that Big 4 auditors perceive family firms from which the incumbent auditors resigned as being less risky than their non-family counterparts.

Auditor Choice and the Informativeness of 10-K Reports

2021 ◽  
pp. 0148558X2110624
Author(s):  
Karel Hrazdil ◽  
Dan A. Simunic ◽  
Nattavut Suwanyangyuan
Keyword(s):  
Financial Reporting ◽  
Audit Fees ◽  
Annual Reports ◽  
Client Characteristics ◽  
Cross Sectional ◽  
Accrual Quality ◽  
Auditor Choice ◽  
Joint Product ◽  
Big 4

This study provides new evidence on the influential role of external auditors in enhancing the informativeness of form 10-K annual reports to shareholders. Specifically, we find that the client’s choice of a Big 4 auditor (PwC, EY, KPMG, and Deloitte) versus a non-Big 4 auditor contributes to cross-sectional variations in 10-K disclosure volume. We also document that the benefit of enhanced disclosures provided by Big 4 auditors is more pronounced for audit clients with poorer accrual quality and those with higher information asymmetry. Furthermore, we introduce the portion of 10-K length unexplained by operating complexity and observable client characteristics as a new proxy for audit firm effort. Specifically, we find that abnormally long disclosures are associated with higher audit fees and longer audit report lag, which implies that an incremental level of audit effort can be inferred from the discretionary component of 10-K disclosures. As audit effort is costly, a greater volume of 10-K disclosures can be expected to be associated with an improvement in the quality of financial reporting. Overall, our findings show that auditors play more than a simple attestation role in the financial reporting process, and that the quality of financial reporting in a company’s 10-K annual report is a joint product of the effort and decisions of both a company’s managers and its auditors.

Family firms, political connections and audit fees: evidence from Malaysian firms

2018 ◽  
Vol 33 (6/7) ◽  
pp. 613-632 ◽  
Author(s):  
Chwee Ming Tee
Keyword(s):  
Family Firms ◽  
Audit Fees ◽  
Emerging Economy ◽  
Political Connections ◽  
Advanced Economy ◽  
Content Type ◽  
Self Selection ◽  
Institutional Feature

Purpose The purpose of this study is to examine the association between family firms and audit fees in an emerging economy setting. As family firms either face Type 1 or Type 2 agency problem, it seeks to gain a better understanding on family firms in an emerging economy such as Malaysia. Additionally, this study introduces political connections to investigate whether it can moderate the association between family firms and audit fees. Political connection is chosen as an important institutional feature because of its many and well-documented politically connected firms and pervasive political patronage system in Malaysia. Design/methodology/approach Based on a dataset of 750 firms or 7,848 firm-year observations from 2002 till 2015, panel regression analysis is used to investigate the research questions. As a robustness test, Heckman’s self-selection model is used to deal with the self-selection problem. Findings The results reveal that family firms are associated with higher audit fees, indicating that Type 2 dominates Type 1 agency problems in Malaysia. This positive relationship is stronger in family firms which are older and have higher family controlling shareholding. Further, the association is exacerbated if it is also connected to the ruling elite. Originality/value This study contributes to the literature by showing that institutional feature such as family firms and political connections can produce different firm outcomes between emerging and advanced economy, particularly in auditing. This study responds to calls for more research on auditing in family firms, particularly in emerging economy.

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