Audit Quality: The Role of Board Structure in Family Firms

28 Pages Posted: 4 Oct 2011

See all articles by Mervi Niskanen

Mervi Niskanen

University of Eastern Finland

Jukka Karjalainen

University of Eastern Finland - Business School

Tensie Steijvers

Hasselt University; Research Foundation Flanders

Date Written: June 13, 2011

Abstract

This study investigates the role that board structure has on the demand for audit quality in connection with family ownership in a sample of private firms. In addition to this, we also shed light on whether ownership structure and board structure are substitute mechanisms in resolving agency costs in private family firms. Our main results show that the presence of outsiders on the board increases the demand for audit quality in the overall sample as well as in the presence of family ownership. Our results also confirm previous results and indicate that family firms are less likely to engage a Big 4 auditor even when we control for board structure. Additionally, we find that in a subsample of family firms the probability of choosing a Big 4 auditor decreases with an increase in CEO ownership and is higher in firms with outside boards. When we investigate the interaction between CEO ownership and outside boards, we find that role of outside boards is weaker when CEO ownership increases.

Keywords: Board Structure, Audit Quality, Private firms

JEL Classification: G30

Suggested Citation

Niskanen, Mervi and Karjalainen, Jukka and Steijvers, Tensie, Audit Quality: The Role of Board Structure in Family Firms (June 13, 2011). Available at SSRN: https://ssrn.com/abstract=1937511 or http://dx.doi.org/10.2139/ssrn.1937511

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

Tensie Steijvers

Hasselt University ( email )

Agoralaan - building D
Gebouw D
Diepenbeek, 3590
Belgium

Research Foundation Flanders ( email )

Egmontstraat 5
Brussels, 1000
Belgium

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