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

Ho, Joyce C.; Kang, Fei

doi:10.2308/ajpt-50533

Cited by 123 publications

(216 citation statements)

References 42 publications

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“…However, the demand for Big 4 auditors increases when the controlling shareholder is not a family member. Ho and Kang () found evidence consistent with this premise for a sample of US firms. Chen, Cheng, and Dai () argued that the selection of an auditor depends on the person or individuals who run the business, because the founder, descendants, and professional CEOs vary with respect to their sense of identity, psychological attachment to the firm, and management incentive mechanisms.…”

Section: Determinants Of Auditor Choicementioning

confidence: 68%

Determinants of auditor choice: Review of the empirical literature

Habib

Bhuiyan

et al. 2019

Int J Auditing

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We synthesize the empirical archival literature on the determinants of auditor choice in an international setting, critique the findings, and offer suggestions for future research. We categorize the determinants into (i) firm‐level ownership variables, (ii) nonownership corporate governance determinants, (iii) economic determinants driven by the risk of information asymmetry, and (iv) country‐level institutional determinants, including legal protection of investors, political connections, and national culture. Our comprehensive review not only enriches the academic literature, but also provides material of considerable interest to investors, practitioners (auditors), and regulators.

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Section: Determinants Of Auditor Choicementioning

confidence: 68%

Determinants of auditor choice: Review of the empirical literature

Habib

Bhuiyan

et al. 2019

Int J Auditing

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“…Simunic's audit fee model () suggests that the audit fee is influenced by audit effort. The literature suggests that auditors increase audit efforts in firms that are assessed to have higher business risk (Bell et al, ; Srinidhi et al, ), higher risk of material misstatement (Ghosh & Tang, ), lower earnings quality (Fan & Wong, ), higher risk of accounting fraud (Kim et al, ), and poor firm governance (Bedard & Johnstone, ; Ho & Kang, ). Since evidence suggests that the entrenchment effect is more dominant in Malaysian family firms, auditors assign them higher risks of fraudulent reporting or financial misstatement.…”

Section: Literature Review and Hypotheses Developmentmentioning

confidence: 99%

“…At a glance, results from Table suggest that auditor choice may have explained why CEO power is associated with lower audit fees. However, the supply side theory (Simunic, ) argues and shows that audit risk is lower in firms with higher accruals quality (Kim et al, ; Srinidhi et al, ), strong firm governance (Bedard & Johnstone, ; Srinidhi et al, ), higher financial performance (Bell et al, ; Ho & Kang, ), and lower financial leverage (Ghosh & Tang, ). As hypothesized, this study argues that CEO power can indirectly influence audit fees via accruals quality, firm governance, financial performance, and financial leverage.…”

Section: Empirical Evidencementioning

confidence: 99%

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CEO power and audit fees: Evidence from Malaysia

Tee

2019

Int J Auditing

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This study examines the association between chief executive officer (CEO) power and audit fees, and whether this association is influenced by family ownership and political connections. The results show that CEO power is associated with lower audit fees, consistent with alignment incentive effect. However, this relationship is attenuated by political connections and family ownership. Whereas the overall findings suggest that audit fees are affected by CEO power, its association is largely influenced by key institutional settings in an emerging market setting.

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“…It has been suggested that monitoring by higher‐quality auditors can reduce insiders' incentives and ability to render financial statements less informative, thereby alleviating the problem of agency conflict between insiders and outsiders by mitigating information asymmetry (e.g., Becker, DeFond, & Jiambalvo, ). However, to date, few studies have examined auditing issues in family firms (Ho & Kang, ; Trotman & Trotman, ). This study adds to the existing literature by investigating whether family ownership and control configurations are systematically associated with a firm's choice of auditor.…”

Section: Introductionmentioning

confidence: 99%

Founding family and auditor choice: Evidence from Taiwan

Hsu

Lin

Tsao

2018

Corporate Governance

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Manuscript Type Empirical Research Question/Issue From an agency perspective, we investigate whether family ownership and control configurations are systematically associated with a firm's choice of auditor. Our analysis focuses on three different characteristics of family ownership and control: family ownership (cash flow rights), disparity between cash flow and voting rights held by family owners (cash–vote divergence), and the family identities of CEOs. Research Findings/Insights Our findings suggest that different family ownership and control configurations lead to different agency effects. The alignment effect prevails in family firms with greater family ownership, founder CEOs, and professional CEOs, whereas the entrenchment effect prevails when there is greater cash–vote divergence. Despite the presence of two distinct types of agency effects, regardless of differences in family ownership and control configurations, none of these firms is inclined to appoint higher‐quality auditors. Theoretical/Academic Implications This study advances our understanding of the varied agency effects arising from family ownership, cash–vote divergence, and the family identities of CEOs, as well as the impact of family ownership and control features on auditor choice. Our empirical evidence provides a unique insight, showing that higher‐quality auditors do not tend to be appointed in firms where family alignment with outside investors is relatively strong, as this lowers demand for such auditors. In addition, although family entrenchment may create greater outside investor demand for higher‐quality auditors, such demand is difficult to realize. Practitioner/Policy Implications Auditors are an important external governance mechanism. This study offers insights for policymakers, family owners, auditors, and other capital market participants, with regard to the varied effects of different family ownership and control features on auditor choice.

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

Cited by 123 publications

References 42 publications

Determinants of auditor choice: Review of the empirical literature

Determinants of auditor choice: Review of the empirical literature

CEO power and audit fees: Evidence from Malaysia

Founding family and auditor choice: Evidence from Taiwan

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