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We posit that family firms in China exhibit accounting properties consistent with the prevalence of Type II agency problems. In contrast to the owners of non-family firms, the owners of family firms have more incentives to seek private benefits of control at the expense of minority shareholders and provide lower-quality earnings for self-interested purposes. The empirical evidence presented in this study suggests that the accounting earnings of listed Chinese family firms are less informative, and family firms employ less conservative accounting practices than their non-family counterparts. We also find that Chinese family firms have higher discretionary accruals compared to non-family firms, which is consistent with the view that family firms engage in more opportunistic reporting behavior. Overall, our study suggests that family ownership in China is associated with lower earnings quality, which is in sharp contrast to the findings of prior studies that examine such ownership in the U.S.

Relying on the size of partner signatures in audit reports in Taiwan to measure their narcissism, we find that audit quality rises with partner narcissism. Our analysis also implies that changes in audit quality are positively associated with changes in partner narcissism stemming from mandatory partner rotation. We also find that the impact of partner narcissism on audit quality only manifests when auditor independence is more likely to be compromised, although it does not vary with engagement complexity. These results suggest that partner narcissism improves audit quality mainly through increased auditor independence, rather than auditor competence. Additionally, we document that although partner narcissism has no perceptible impact on the incidence of Type I going concern reporting errors, it is negatively associated with the probability of making a Type II error, implying that more narcissistic partners are less likely to succumb to client pressure to issue opportunistic reports.

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