The Role of Auditing in Small Private Family Firms: Is it About Quality or Credibility?

23 Pages Posted: 3 Jul 2009

See all articles by Mervi Niskanen

Mervi Niskanen

University of Eastern Finland

Jukka Karjalainen

University of Eastern Finland - Business School

Jyrki Niskanen

University of Kuopio - Department of Business and Management

Date Written: July 1, 2009

Abstract

This paper is one of few that investigate the role of auditing in family firms. Our results suggest that family firms are less likely to use Big 4 audit firms than the non-family firms in our sample of small private Finnish firms. More specifically, we find that an increase in family ownership decreases the likelihood that a Big 4 audit firm will be engaged. Because of our Finnish database we are also able to differentiate between the demand for Big 4 audit firms, other highly qualified certified auditors and non-certified auditors. Our results show that family ownership has no impact on the demand for certified auditor services. Also, contrary to most previous studies on the demand of audit quality in private firms, leverage does not have a significant effect in our sample of small private family firms.

Keywords: Audit quality, family ownership, agency costs

JEL Classification: G3

Suggested Citation

Niskanen, Mervi and Karjalainen, Jukka and Niskanen, Jyrki, The Role of Auditing in Small Private Family Firms: Is it About Quality or Credibility? (July 1, 2009). Available at SSRN: https://ssrn.com/abstract=1428382 or http://dx.doi.org/10.2139/ssrn.1428382

Mervi Niskanen (Contact Author)

University of Eastern Finland ( email )

PL 1627
Kuopio, 70211
Finland

Jukka Karjalainen

University of Eastern Finland - Business School ( email )

P.O. Box 1627
Kuopio, FI-70211
Finland

Jyrki Niskanen

University of Kuopio - Department of Business and Management ( email )

Kuopio, 70211
Finland