Ownership Concentration, Family Control, and Auditor Choice: Evidence from an Emerging Market
42 Pages Posted: 6 Feb 2012
Date Written: February 6, 2012
Abstract
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.
Keywords: Auditor choice, Big 4, corporate governance, external audit, Indonesia
JEL Classification: G32, G34, M41, M42
Suggested Citation: Suggested Citation
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