Auditor Choice and Audit Fees in Family Firms: Evidence from the S&P 1500

Abstract

We examine auditor choice and audit fees in family firms using data from Standard & Poor's (S&P) 1500 firms. We find that, compared to non-family firms, family firms are less likely to hire top-tier auditors due to the less severe agency problems between owners and managers. Our results also show that family firms, on average, incur lower audit fees than non-family firms, which is driven by family firms' lower demand for external auditing services and auditors' perceived lower audit risk for family firms. Our additional analysis indicates that the tendency of family firms to hire non-top-tier auditors and to pay lower audit fees is stronger when family owners actively monitor their firms.

Keywords: auditor choice, audit fees, family firms, agency problems