Family control, corporate governance, and auditor choice: evidence from Italy

Giuseppe Ianniello, Marco Mainardi and Fabrizio Rossi

International Journal of Accounting and Finance, 2015, vol. 5, issue 2, 99-116

Abstract: This paper analyses the relationship between family control, some internal corporate governance characteristics, and external auditor choice. In particular, following previous research, we assume that audit services provided by the Big 4 are associated with higher audit quality. Corporate governance is observed through some board of directors (BOD) features. In our empirical analysis, we use a sample of Italian listed companies during the period 2007-2010. We implement univariate (parametric and non-parametric tests) and multivariate analysis (logit model) to test our hypotheses. The empirical analysis shows that family controlled firms, a small BOD, and a concentration of power stemming from the dual role of chairman and chief executive officer (CEO) tend to discourage the choice of a reputable auditor. One possible explanation is that there is a tendency to maintain information asymmetry, with a potentially higher conflict of interest, to the detriment of other stakeholders, particularly the minority shareholders, in a context of strict link between the majority shareholders (the controlling family), the BOD, and the CEO.

Keywords: family firms; corporate governance; auditor choice; board of directors; BOD; Big 4 audit firms; Italy; family businesses; family control; auditing; concentration of power; chief executive officer; CEO; information asymmetry; conflict of interest; minority shareholders; majority shareholders. (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (1)

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