The effect of family control on audit fees during financial crisis

Abstract

Purpose: The purpose of this study is to empirically examine the effect of family involvement in ownership, management and directorship on audit fees during the crisis and non-crisis periods. Design/methodology/approach: Following Anderson and Reeb (2003), this paper uses a two-way fixed effect model to examine the impact of family control on audit fees in crisis and non-crisis periods. The fixed effects include dummy variables for each year and each industry code in the sample. Findings: This paper finds that during normal economic periods, family firms pay lower audit fees relative to non-family firms because of the incentive alignment or monitoring effect. While, during crisis periods, family firms pay higher audit fees because of the shareholder expropriation effect. Research limitations/implications: The results reported in this paper have both practical and policy implications for the demand and supply of audit services to firms having different ownership structures. Originality/value: This is the first study of its kind to examine the effect of family ownership and involvement on audit fees during the crisis period. © 2020, Emerald Publishing Limited.