Agency conflicts and auditing in private firms
Journal article, Peer reviewed
Permanent lenke
http://hdl.handle.net/11250/93674Utgivelsesdato
2012Metadata
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- Scientific articles [2189]
Originalversjon
http://dx.doi.org/10.1016/j.aos.2012.06.002Sammendrag
We are interested in understanding how agency conflicts in private firms arise through
ownership structures and family relationships. Specifically, we analyze auditors’ increase of
effort and firms’ choice of auditors in situations with higher level of agency conflicts. For a large
sample of private firms, we use unique and confidential data (obtained through special
permission by the government) to measure direct and ultimate ownership for each shareholder as well as extended family relationships (based on marriage and blood lines, going back four generations and extending out to fourth cousin) among all shareholders, board members, and CEOs. We first find that audit fees, our proxy for audit effort, vary as hypothesized with firmlevel
characteristics related to ownership structures and family relationships. Second, we find
evidence that firms in higher agency cost settings respond by having their financial statements audited by a higher-quality auditor (i.e., a Big 4 firm). However, for CEO family-related settings (i.e., where the CEO is related to the major shareholder or as the number of board members related to the CEO increases), we find no evidence of a greater demand for a Big 4 auditor.
Beskrivelse
This is the authors’ final, accepted and refereed manuscript to the article