Pricing family leadership: Evidence from audit fees

This paper examines whether the controlling family holding the chairmanship affects audit pricing. Using a sample of Chinese A-share listed family firms from 2008 to 2019, we find that the presence of family chairs is associated with an audit fee discount. A path analysis shows that firms with family chairs are subject to less insider expropriation through related-party transactions and higher quality of financial information disclosures, with consequent lower audit risk and thus lower audit fees. Additionally, the audit fee reduction effect of family chairs is driven primarily by internally promoted family chairs and founder family chairs, who have strong incentives and power to build the image and reputation of controlling families. We also find that this effect is more pronounced when controlling families are more concerned about their reputation and when firms are located in regions with weaker institutional environments. Finally, we exclude the alternative explanation that the lower audit fees are due to family chairs' proactively selecting low-quality auditors.