Auditors and the Principal-Principal Agency Conflict in Family-Controlled Firms
Forthcoming in Auditing: A Journal of Practice & Theory
47 Pages Posted: 8 Jun 2020
Date Written: May 30, 2020
This paper examines whether multiple large shareholders (MLS) affect audit fees in firms where the largest controlling shareholder (LCS) is a family. Results show that there is a negative relationship between audit fees and the presence, number, and voting power of MLS. This is consistent with the view that auditors consider MLS as playing a monitoring role over the LCS, mitigating the potential for expropriation by the LCS. Therefore, our evidence suggests that auditors reduce their audit risk assessment and audit effort and ultimately audit fees in family-controlled firms with MLS.
Keywords: Multiple large shareholders; Private benefits of control; Corporate governance; Audit fees.
JEL Classification: G32; G34; M42; D86
Suggested Citation: Suggested Citation