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

Author

Listed:
  • Giuseppe Ianniello
  • Marco Mainardi
  • Fabrizio Rossi

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.

Suggested Citation

  • Giuseppe Ianniello & Marco Mainardi & Fabrizio Rossi, 2015. "Family control, corporate governance, and auditor choice: evidence from Italy," International Journal of Accounting and Finance, Inderscience Enterprises Ltd, vol. 5(2), pages 99-116.
    • Handle: RePEc:ids:intjaf:v:5:y:2015:i:2:p:99-116
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