Family Firm, Audit Fee and Auditor Choice: Australian Evidence

Abstract:     
This study aims to examine the relation between family ownership and control, and audit fee and auditor choice in Australian companies. The dominance of concentrated ownership and related institutional features of Australia offers an interesting opportunity to examine the key role family ownership and control plays as a determinant of audit fee as well as auditor choice. Agency theory suggests a mixed perspective on the agency problems that are inherent in family firms and thence their implications for audit pricing and auditor choice. We find that family firms pay higher audit fee than non-family firms. Moreover, family share ownership is related with higher audit fee. This is consistent with supply-side theory (i.e., higher assessed client-related risks due to family owners’ expropriation, poor monitoring of management, and higher information asymmetry) on the determinants of audit fee. We also find that compared to non-family firms, family firms are more likely to appoint big 4 auditors to ensure quality audit and reduce higher agency costs perceived by the market.

Number of Pages in PDF File: 1

Keywords: Family ownership, audit fee, auditor choice

working papers series