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.

CEO and CFO Equity Incentives and the Pricing of Audit Services

2013 ◽  
Vol 33 (2) ◽  
pp. 1-25 ◽  
Author(s):  
B. Anthony Billings ◽  
Xinghua Gao ◽  
Yonghong Jia
Keyword(s):  
Positive Association ◽  
Audit Fees ◽  
Internal Controls ◽  
Audit Risk ◽  
Pricing Decisions ◽  
Equity Incentives ◽  
Accounting Scandals ◽  
Using Data ◽  
Distinctive Role

SUMMARY: The alleged perverse role of managerial incentives in accounting scandals, and the distinctive role of auditors in identifying and intervening in attempted earnings manipulation, highlight the importance of explicitly considering executive incentive plans by auditors in the auditing process. By empirically testing auditors' responses to CEO/CFO equity incentives in planning and pricing decisions using data from 2002 through 2009, we document compelling evidence that CFO equity incentives are positively associated with audit fees and CEO equity incentives are not statistically related to audit fees, suggesting that auditors perceive heightened audit risk associated with CFO equity incentives. Our further analyses reveal that the positive association between CFO equity incentives and audit fees is more pronounced in firms with weak internal controls, indicating heightened risk associated with CFO equity incentives in this setting perceived by auditors. JEL Classifications: G30, G34, M42, M52.

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.

scholarly journals Family Firms, Audit Fee, and Auditor Choice: Evidence From Indonesia

2019 ◽  
Vol 6 (2) ◽  
pp. 83-96
Author(s):  
Senny Harindahyani ◽  
Celine Widjaja
Keyword(s):  
Family Firms ◽  
Audit Quality ◽  
Agency Problems ◽  
Family Control ◽  
Audit Firm ◽  
Auditor Choice ◽  
Big 4 ◽  
Audit Firms ◽  
Audit Fee ◽  
The Family

Family firms in Indonesia have an important role in the Indonesian economy. However, agency problems might happen inside family firms where it will lead to conflict of interest and information asymmetry, along with the entrenchment effect where it leads firms to produce lower quality earnings report. Research from 305 firms in Indonesia shows that the agency problems and the entrenchment effect has not affected the family firms in Indonesia, reflected from the firm‟s decision making in their amount of audit fee and auditor choice. This study will contribute by providing an empirical evidence of the effect of family control on the audit fee and auditor choice in a developing country. The result shows that the type of firms has no correlation on the amount of audit fee paid to the auditor and both firms‟ demands the same level of audit quality where it is shown by their choices of audit firms, which is Big 4 audit firm or Non-Big 4 audit firm. In conclusion, the level of agency problems and entrenchment effect tends to be lower in the family firms of Indonesia.

Political Connections, Audit Opinions, and Auditor Choice: Evidence from the Ouster of Government Officers

2017 ◽  
Vol 36 (3) ◽  
pp. 91-114 ◽  
Author(s):  
Ku He ◽  
Xiaofei Pan ◽  
Gary Gang Tian
Keyword(s):  
Audit Fees ◽  
Political Connections ◽  
Corporate Ownership ◽  
Audit Risk ◽  
Listed Firms ◽  
Auditor Choice ◽  
Ownership Structures ◽  
Before And After ◽  
Audit Opinions ◽  
High Level

SUMMARY In this study, we examine changes in audit opinions and auditor choice decisions in politically connected firms before and after the exogenous termination of their political connections. We use 84 anti-corruption cases involving high-level Chinese bureaucrats between 2004 and 2014 to construct a nature experiment, and identify a set of listed firms whose executives bribe or have connections through family affiliation with these corrupt bureaucrats. We find that within the event years of the ouster of corrupt bureaucrats, connected state-owned enterprises (SOEs) receive more favorable audit opinions than their non-connected counterparts, whereas connected non-SOEs obtain less favorable opinions. Moreover, after the termination of political connections, connected SOEs are more likely, while connected non-SOEs are less likely, to hire local small auditors. Additional analyses show that termination of political ties has more pronounced effects after the recent anti-corruption campaign. Furthermore, the levels of earnings management and audit fees in SOEs decrease when political connections are terminated, but they increase in non-SOEs. In summary, our study suggests that the termination of corporate political connections has a significant influence on auditors' assessments of audit risk and firms' auditor choice patterns, and this influence is subject to corporate ownership structures.

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. 

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

2021 ◽  
pp. 089448652110578
Author(s):  
Jengfang Chen ◽  
Ni-Yun Chen ◽  
Liyu He ◽  
Chris Patel
Keyword(s):  
Family Firms ◽  
Negative Impact ◽  
Credit Ratings ◽  
Disclosure Quality ◽  
Auditor Choice ◽  
Big 4 ◽  
Using Data ◽  
Firm Owners ◽  
Moderating Role

Despite the substantial degree of heterogeneity within family firms, little is known about how their heterogeneity affects firm behavior and the implication for the shareholder–debtholder agency problem. Our study contributes to the literature by examining whether family firms with a higher level of control-ownership divergence would disclose less information and whether Big 4 auditors play a moderating role in mitigating the negative impact of control-ownership divergence on disclosure quality resulting in improved credit ratings. Using data from the emerging economy of Taiwan, we provide support for our three hypotheses. Our contributions will interest family firm owners, researchers, auditors, and policymakers.

scholarly journals Ownership Structured Firms in Malaysia: Audit Committee Characteristics and Audit Fees

2019 ◽  
Vol 16 (2) ◽  
pp. 77
Author(s):  
Norziaton Ismail Khan ◽  
Susela Devi K. Suppiah ◽  
Wai Meng Chan
Keyword(s):  
Ownership Structure ◽  
Audit Committee ◽  
Business Performance ◽  
Family Firms ◽  
Unique Feature ◽  
Audit Fees ◽  
Managerial Ownership ◽  
Concentrated Ownership ◽  
The Government ◽  
Using Data

The political economy shaped the ownership structure of corporations in Malaysia. The rapid growth of the economy has not diluted the concentrated ownership structure in the Malaysian firms. Malaysia has its own unique feature of ownership structured firms which can be divided into politically connected (PCON) firms, institutional ownership and managerial ownership (INST&MGRL) firms, and family ownership (FAMILY) firms. The purpose of this paper is to investigate whether PCON, INST&MGR and FAMILY firms are associated with higher audit fees. This study also examines the association between audit committee characteristics IND, DIL and EXP and audit fees based on the revamped Bursa Listing Requirements in 2008, which focus on audit committee characteristics. Using data from 567 firm-year observations from years 2008 to 2010, we find that PCON firms pay higher audit fees than INST&MGRL and FAMILY firms. Further, the association between audit committee IND, DIL and EXP audit fees is positive and significant for PCON firms. Suggesting that the government intervention is expected to produce better governance and improve the firm’s business performance. This is because the government has given much attention and initiatives to ensure that these firms perform in an effective way and assist the government to improve the economic growth.

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

Conditional Conservatism and Audit Fees

2014 ◽  
Vol 29 (1) ◽  
pp. 83-113 ◽  
Author(s):  
Hye Seung (Grace) Lee ◽  
Xu Li ◽  
Heibatollah Sami
Keyword(s):  
Corporate Governance ◽  
Potential Benefit ◽  
Audit Fees ◽  
Accounting Conservatism ◽  
Audit Risk ◽  
Debt Contracting ◽  
Conditional Conservatism ◽  
Governance Quality ◽  
Corporate Governance Quality ◽  
The Impact

SYNOPSIS In this study, we examine the impact of conditional conservatism on audit fees and, more importantly, the influence of corporate governance on this relationship. Prior literature presents evidence regarding explanations for the existence and pervasiveness of accounting conservatism such as compensation and debt contracting, shareholder litigation, taxation, and accounting regulation. However, there is very limited evidence or discussion of the potential benefit of accounting conservatism on audit risk and thus audit fees, and how the potential benefit can be attenuated by corporate governance quality. Using a sample of firm-year observations over the period of 2004–2009, we provide evidence consistent with conditional conservatism and firms' commitment to such conservatism reducing their audit fees. However, our evidence shows that this reduction in audit fees is moderated by higher corporate governance quality. These results have implications for auditors, regulators, standard setters, and firms' managers. In addition, our study extends the literature on the determinants of audit fees. JEL Classifications: M41; M42; D81; D22.

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