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The effect of intrafamily agency conflicts on audit demand in private family firms

Journal Contribution - Journal Article

Subtitle:the moderating role of the board of directors
While the value of external audits was long considered to be minimal for private family firms, some exceptional studies indicate that external audits are demanded by these firms to reduce the agency conflicts between family and non-family members. Using a sample of Belgian private family firms, this study empirically shows that (high quality) auditors are also hired to mitigate agency conflicts among family members. Since these intrafamily agency conflicts are mainly based on emotions instead of economically rational behavior and are therefore difficult to grasp by compositional proxies, they are identified by the level of family cohesion. Moreover, this study shows that the monitoring effectiveness of the board of directors weakens the association between the level of intrafamily agency conflicts and audit (quality) demand, indicating that the audit demand effect of intrafamily agency conflicts decreases when family firms are able to reduce the related agency costs internally. (C) 2017 Elsevier Ltd. All rights reserved.
Journal: Journal of family business strategy
ISSN: 1877-8585
Volume: 8
Pages: 13 - 28
Publication year:2017
Keywords:A1 Journal article
BOF-keylabel:yes
BOF-publication weight:2
CSS-citation score:1
Authors from:Government
Accessibility:Closed