The Effect of Ownership Structure on Disclosure Quality and Credit Ratings in Family Firms: The Moderating Role of Auditor Choice

He, Colly; Chen, Jengfang; Patel, Chris; Chen, Niyun

doi:10.1177/08944865211057854

Cited by 16 publications

(5 citation statements)

References 119 publications

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“…We contribute to the emerging literature on family firms' auditor choice and audit fees regarding family control and ownership. This study extends earlier research (Chen et al ., 2022; Al-Qadasi et al ., 2019; Hsu et al ., 2018; Ho and Kang, 2013; Lei and Lam, 2013; Khan et al ., 2015) on audit and disclosure quality in the context of developing economies.…”

Section: Introductionsupporting

confidence: 92%

“…Recent findings that confirm the link between family ownership and control structures with a firm's auditor choice inspire our research (Chen et al ., 2022; Al-Qadasi et al ., 2019). Contemporary studies (e.g., Hsu et al ., 2018; Habib et al ., 2019) recommended further research to reach a better view on how corporate governance mechanisms play a valuable role in auditor selection and audit efforts.…”

Section: Introductionsupporting

confidence: 75%

“…By contrast, the choice of external auditors, as a company's critical decision on financial reporting, can be influenced by family firms' agency problems (Hsu et al ., 2018). However, research has scarcely examined auditor choice issues in family firms (Chen et al ., 2022; Al-Qadasi et al ., 2019; Hsu et al ., 2018; Ho and Kang, 2013; Lei and Lam, 2013). Through the lens of agency theory, we add to the literature by demonstrating whether Chinese family ownership and control configurations have a systematic link with a firm's choice of auditor.…”

Section: Introductionmentioning

confidence: 99%

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Auditor choice and audit fees through the lens of agency theory: evidence from Chinese family firms

Rahman

Zhu

Hossain

2023

JFBM

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PurposeFrom an agency perspective, the authors investigate whether family ownership and control configurations are systematically associated with a firm's choice of auditor and audit fees. Agency theory is an economic theory that purposes the existence of a contract between two parties, principals and agents. Auditor choice and audit fees by family firms provide interesting insights given the unique nature of the agency problems faced by such firms.Design/methodology/approachThe authors employ Big-4 auditors (PWC, KPMG, E&Y and Deloitte) as a proxy for high quality auditor (Big N) for the auditor choice model. For the audit fee model, the dependent variable is the natural logarithm of audit fees (LnAF). The authors use two measures for family firm as explanatory variables: (1) a dummy variable (FAM_Control), which equals one if the firm is classified as a family firm and (2) FAM_Ownership, which is an indicator variable with a value of one if a firm has family members who hold CEO position, occupy board seats, or hold at least 10% of the firm's equity. Data of Chinese listed firms from 2011 to 2021 are used. The authors adopt the Heckman (1979) two-stage model to mitigate the potential endogeneity issue involved in the selection of Big-N auditors.FindingsThe findings suggest that compared with non-family firms, Chinese family firms have a less tendency to employ Big-4 auditors due to less severe agency problems between owners and managers. Additionally, Chinese family firms sustain higher audit fees than non-family firms. Similar to the prior literature, however, Chinese family firms audited by Big-4 auditors incur lower audit fees than family firms audited by non-Big-4 auditors in this study. In contrast to young-family firms, old-family firms are less likely to pick top-tier auditors and sustain lower audit fees. Consistent and robust results are found from endogeneity tests and sensitivity analyses.Originality/valueThe empirical evidence provides a unique insight, for accounting practitioners, policymakers, family owners and other capital market participants concerning the diverse effects of various family ownership and control features on selecting high-quality auditors and audit fees. This study advances the understanding, showing that a lower demand for audit quality occurs in Chinese family firms as they encounter less severe Type I agency problems. However, the more severe Type II agency problems in Chinese family firms sustain higher audit fees due to higher audit risk and greater audit effort.

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Section: Introductionsupporting

confidence: 92%

Section: Introductionsupporting

confidence: 75%

Section: Introductionmentioning

confidence: 99%

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Auditor choice and audit fees through the lens of agency theory: evidence from Chinese family firms

Rahman

Zhu

Hossain

2023

JFBM

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“…Consistent with existing literature [67][68][69] [74], Zhang and Zhang (2021) [75] and Abu Afifa et al (2021) [22] and Chen et al (2022) [76], the ownership structure is measured in terms of both quantitative and qualitative aspects. The quantitative aspect is measured by ownership concentration (Top) and equity balance (Z) and the nature aspect is measured by executive ownership (Mhold) and institutional investor ownership (Inst).…”

Section: Independent Variablesupporting

confidence: 58%

The Impact of ESG Performance on Firm Value: The Moderating Role of Ownership Structure

2022

Sustainability

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The purpose of this paper is to investigate the relationship between Environmental, Social and Governance (ESG) performance and firm value of Chinese manufacturing listed companies. The moderating role of ownership structure on the relationship between ESG performance and firm value is also tested. Sino-Securities ESG Rating is adopted in this paper to measure ESG performance and ownership structure is measured in four aspects, which include ownership concentration, equity balances, executive shareholding and institutional investor shareholding. We find that (1) ESG performance is important in improving firm value, (2) executive ownership and institutional ownership positively and significantly affect firm value, while ownership concentration and equity balance have no impact and (3) executive ownership and institutional ownership moderate the link between ESG performance and firm value, whereas the moderating role of ownership concentration and equity balance is not significant. The results of this study contribute to the existing literature on ESG and will aid corporations to enhance firm value through improving ESG performance.

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“…Hence, when the "family identity" is prioritized, it is plausible that family principals would improve the capability of the internal auditing function to safeguard the firm's longevity (Bennedsen et al, 2007;G omez-Mejı ´a et al, 2014) by preventing risks and uncertainties. Previous studies support this view and reveal that family companies with a higher level of family ownership are likely to show a better quality of earnings and transparent corporate disclosure (Abudy and Shust, 2022;Chen et al, 2022), as well as an increase in the demand for a higher internal and external audit quality (Carey et al, 2000). Hence, when family ownership is high, family owners may feel confident that internal auditing services will help the company manage risks to preserve the family's image in the market.…”

Section: Family Ownership and Internal Auditingmentioning

confidence: 95%

Family involvement in ownership and governance and internal auditing quality

Ginesti,

Santonastaso,

Macchioni

2023

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Purpose This paper aims to investigate the impact of family involvement in ownership and governance on the quality of internal auditing. Design/methodology/approach Leveraging a hand-collected data set of listed family firms from 2014 to 2020, this study uses regression analyses to investigate the impact of family ownership, family involvement on the board, family CEO and the generational stage of the family business on the quality of internal auditing. Findings The results provide evidence that family ownership is positively associated with the quality of internal auditing, while later generational stages of family businesses have the opposite effect. Additional analyses reveal that the presence of a sustainability board sub-committee moderates the relationship between generational stages of family businesses and the quality of internal auditing function. Research limitations/implications This paper does not consider country-institutional factors and other potentially family-related antecedents or governance factors that may affect the quality of internal auditing. Practical implications The results are informative for investors and non-family stakeholders interested in understanding under which conditions family-related factors influence the quality of internal auditing functions. Originality/value This study offers fresh evidence regarding the relationship between family-related factors and the quality of internal auditing and board sub-committees that moderate such a relationship in family businesses.

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The Effect of Ownership Structure on Disclosure Quality and Credit Ratings in Family Firms: The Moderating Role of Auditor Choice

Cited by 16 publications

References 119 publications

Auditor choice and audit fees through the lens of agency theory: evidence from Chinese family firms

Auditor choice and audit fees through the lens of agency theory: evidence from Chinese family firms

The Impact of ESG Performance on Firm Value: The Moderating Role of Ownership Structure

Family involvement in ownership and governance and internal auditing quality

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