The Role of Auditing in Small, Private Family Firms: Is It About Quality and Credibility?

Family Business Review, Vol. 23, pp. 230-245

Posted: 15 Aug 2010 Last revised: 27 Aug 2010

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: June 7, 2010

Abstract

The authors present empirical evidence of how family ownership and control affect the demand for audit quality measured by audit firm size in a sample of small private firms. The results indicate that family-held or family-controlled firms are less likely to use Big 4 auditors than non-family firms and that an increase in family ownership decreases the likelihood of a Big 4 audit. The results imply that the less concentrated family ownership is, the more need there is for outside control mechanisms because of higher agency costs. The results imply that family influence increases firms’ incentives to employ Big 4 audit firms, thereby increasing the credibility of their financial statements vis-à-vis outside stakeholders.

Keywords: Family ownership, audit quality

JEL Classification: G32

Suggested Citation

Niskanen, Mervi and Karjalainen, Jukka and Niskanen, Jyrki, The Role of Auditing in Small, Private Family Firms: Is It About Quality and Credibility? (June 7, 2010). Family Business Review, Vol. 23, pp. 230-245, Available at SSRN: https://ssrn.com/abstract=1658351

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

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