Ownership Concentration, Family Control, and Auditor Choice: Evidence from an Emerging Market
Indonesia Financial Services Authority (OJK)
February 6, 2012
This empirical study extends the existing, yet limited, literature on the influence of ownership concentration and family control on auditor choice. Following prior studies, a firm is considered using a higher-quality audit when its external auditor is one of Big 4 audit firms. The sample consists of 787 firm-year observations of public firms listed on the Indonesia Stock Exchange (IDX) in the financial years 2005-2007. Empirical evidence obtained reveals that firms with larger ownership concentration are more likely to hire a Big 4 auditor. Hence, in such firms, high-quality audits are employed to mitigate agency issues. However, when the controlling shareholder is a family, the association between ownership concentration and demands for high-quality auditors turns negative, implying that family-controlled firms tend to sustain opaqueness gains by hiring lower-quality auditors.
Number of Pages in PDF File: 42
Keywords: Auditor choice, Big 4, corporate governance, external audit, Indonesia
JEL Classification: G32, G34, M41, M42working papers series
Date posted: February 6, 2012
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