Do Family Firms Pay More Attention to Audit Fees and Audit Choices Than Non-Family Firms? PDF Download

Author: Javad Izadi
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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PurposeThe main aim of this paper is to examine auditor choice and audit fees in family firms on the Tehran Stock Exchange.Design/methodology/approachThe hypotheses set are tested by analysing all firms except financial firms listed on the Tehran Stock Exchange for the period of 10 years, using a sample of 1,050 firm-year observations. Probity and ordinary least squares regression (OLS) is used to investigate the associations proposed in the research hypotheses.FindingOur findings show that in family firms, in contrast with non-family firms, the large auditor is less often selected as the firm's auditor. The findings also show that family firms pay higher fees for their audits in comparison with non-family firms and show that the choice of a large auditor reduces the relationship between family ownership and audit fee. The additional analysis shows that choosing industry specialist auditors is less likely in family firms compared to non-family firms.Practical implicationsThe importance of this research is in the increased awareness for researchers and users about family ownership and the selection of auditors and audit fees in the emerging market capitalization of Iran. This research contributes to the accounting literature by providing empirical evidence of the effects of family control and ownership on audit pricing and auditor choice in a developing economy context. Also, this research can provide a new route for research on this issue in developing countries, e.g., Iran.Originality/valueThese findings were discovered by means of the financial data in the particular environmental conditions of Iran which differ from the features and conditions for institutional investors in developed countries.

Author: Chiraz Ben Ali
Publisher:
ISBN:
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Languages : en
Pages :

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Family businesses are an important part of the world economy (Anderson and Reeb, 2003) and differ considerably from non-family firms with regard to corporate governance. However, despite their difference, family businesses have received relatively little research attention. Our study contributes to this growing research by empirically investigating the relationship between family shareholding and audit pricing. Using a sample of 3,291 firm-year observations of major U.S. listed companies, for the 2006-2008 period, our results demonstrate that audit fees are negatively associated with family shareholding after taking into account time-varying effects and industry effects as well as traditional control variables. The empirical results are robust to alternative family shareholding measures and estimation model specifications. Our results are consistent with the convergence-of-interests hypothesis suggesting that family firms face lower manager/shareholders agency costs. Auditors charge lower fees for family firms because of lower information asymmetry and risk given that the controlling family is well informed about the firm and is better able to monitor managerial decisions.

Author: Joanna L.Y. Ho
Publisher:
ISBN:
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Languages : en
Pages :

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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.

Author: Fei Kang
Publisher:
ISBN: 9781267419200
Category :
Languages : en
Pages : 87

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I examine whether and how family firms' unique ownership structure and agency problems affect their choice of industry-specialist auditors and the level of audit fees. Following prior literature, I define family firms as those in which members of the founding family continue to hold positions in top management, sit on the board, or are blockholders. Compared to non-family firms, family firms are subject to less severe Type I agency problems due to family owners' long-term horizon and close monitoring of managers, but face more severe Type II agency conflicts due to the concentrated ownership and excess of control rights over cash flow rights held by family owners. Using data from the S & P 1500 firms, I find that family firms are more likely to appoint industry-specialist auditors and incur lower audit fees than non-family firms. The results suggest that family firms have strong incentives to hire industry specialists to signal the quality of their financial reporting due to the Type II agency problems, and that they have lower assessed audit risk and less demand for external audit services due to the mitigated Type I agency problems. My additional analysis shows that, compared to family firms without dual-class shares, family firms with dual-class shares have higher demand for industry-specialist auditors to signal firms' disclosure quality. Furthermore, my results indicate that, when family members serve as CEOs, firms have a stronger tendency to hire industry specialists and to pay lower audit fees. In addition, although family firms have a higher likelihood of hiring industry-specialist auditors than non-family firms, I find no evidence that family firms purchase more non-audit services from their incumbent auditors.

Author: Menachem (Meni) Abudy
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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We examine differences in audit scope between family and non-family firms in Israel, using a unique database that includes both external and internal audit fees, hours, and billing rates. Consistent with prior literature, we argue that the number of audit hours reflects an auditor's effort, and the hourly rate reflects the auditor's risk premium. We find that external auditors exert less effort and charge lower hourly rates for family firm engagements than for non-family firm engagements. Moreover, internal audit efforts are lower in family firms than in non-family firms. Using a sub-sample of firms that switched from family to non-family status and vice-versa, we provide evidence on the causal relationship between family firm status and the scope of the audit. Our results mean that auditors reduce the scope of the audit in family firms because they perceive these firms to be less audit-risky. Nevertheless, we find that the reporting quality of family firms is higher than that of non-family firms.

Author: Arifur Khan
Publisher:
ISBN:
Category :
Languages : en
Pages : 40

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Despite the dominance of family-owned publicly listed companies in developing economies, prior research has paid relatively little attention to this area, and the socio-economic context of these countries has been mostly ignored. This study contributes to the accounting literature by providing empirical evidence of the effects of family control and ownership on audit pricing and auditor choice in a developing economy context. Using 1,058 firm-year observations of publicly listed companies in Bangladesh, where family firms are the most dominant form of public companies, we determine that in comparison with non-family firms, our sample family firms pay significantly lower audit fees and tend to choose lower quality auditors. However, for export oriented industries, family firms seem to pay significantly higher audit fees and recruit better quality auditors compared to non-family firms, indicating stakeholder power. Collectively, our findings have important implications for audit markets in emerging economies in which the sustainability of family firms is crucial for overall economic development.

Author: Aloke Ghosh
Publisher:
ISBN:
Category :
Languages : en
Pages : 48

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Book Description
We analyze audit fees and audit risk to extract auditor's assessment of family firms' financial reporting quality. Relative to non-family firms, we find that auditors charge significantly less from family firms and the fee difference shrinks in magnitude when family firms have high audit risk. Using constructs for audit risk and audit effort, we show that family firms have lower audit risk and that their auditors work less to provide assurance. Our findings suggest that superior reporting quality lowers audit risk and the need for greater audit investments, which is why auditors charge less from family firms.

Author: Samer Khalil
Publisher:
ISBN:
Category :
Languages : en
Pages :

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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. Big4 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 Big4 auditors perceive family firms from whom the incumbent auditors resigned as being less risky than their non-family counterparts.

Author: Silvia Ferramosca
Publisher: Springer
ISBN: 3319735888
Category : Business & Economics
Languages : en
Pages : 276

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Book Description
This book provides a critical analysis of the current state of knowledge on the relationship between family firms and a wide range of accounting choices, including earnings management, accounting conservatism, and financial and non-financial disclosure. In examining the choices made in family firms, the authors explore and elucidate the relevance of agency, socioemotional wealth, stewardship, and resource-based theories. Readers will also find close consideration of the impacts of a country’s culture and societal values on accounting choices. In particular, further evidence is provided on the impact of different cultures on accounting conservatism in family businesses. Finally, avenues for future accounting research on family firms are discussed, highlighting theoretical and empirical challenges. In addition to offering a revealing analysis of the influence of ownership types and cultures on accounting choices within family firms, the book identifies significant practical implications for the management of family firms and policy implications for regulators and standard setters.

Author: Bin Srinidhi
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

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Book Description
We show using a sample of U.S. listed firms that larger and older family firms and those that plan to access the capital market differentiate themselves from other family firms by choosing independent and effective corporate boards and by taking demonstrably independent board actions that are costly for exploitative insiders to mimic, such as choosing specialist auditors and exposing the firm to intensive scrutiny by the auditors. We show that the current evidence on higher earnings quality in family firms is driven by firms that choose strong boards. Although family firms generally pay lower audit fees than nonfamily firms because of lower risk, this result does not hold in family firms with strong governance. Such good-governance firms are more likely to choose specialist auditors than weak-governance firms and pay audit fees that are as high as those for nonfamily firms. We interpret these choices as suggesting that a subset of family firms signal their transparency to the market and separate themselves from other family firms. In a confirmatory test, we find that this subset of family firms enjoys better credit ratings.