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Ownership concentration, family control, and auditor choice: Evidence from an emerging market

Salim Darmadi (Indonesia Financial Services Authority (OJK), Jakarta, Indonesia AND Indonesian College of State Accountancy (STAN), Tangerang Selatan, Indonesia)

Asian Review of Accounting

ISSN: 1321-7348

Article publication date: 1 February 2016

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Abstract

Purpose

The purpose of this paper is to extend the existing, yet limited, literature on the influence of ownership concentration and family control on the demands for high-quality audits. This study focusses on an emerging market, namely, Indonesia, where ownership concentration and family control are relatively higher than those in developed markets.

Design/methodology/approach

The sample consists of 787 firm-year observations of public firms listed on the Indonesia Stock Exchange. Following prior studies, a firm is considered using a higher quality audit when its external auditor is one of the Big 4 audit firms. Logistic regressions are employed to test research hypotheses.

Findings

Empirical evidence obtained reveals that firms with higher ownership concentration are more likely to hire a Big 4 auditor. Hence, in such firms, high-quality audits are employed to mitigate agency issues. However, when the controlling shareholder is a family, the association between ownership concentration and the demands for high-quality auditors turns negative, implying that family-controlled firms tend to sustain opaqueness gains by hiring lower quality auditors.

Originality/value

Previous empirical studies examining the influence of ownership concentration and family control on auditor choice are relatively limited in the literature and are heavily focussed on developed economies. In addition, the present study is one of the first to investigate the association between family control and auditor choice in the context of a developing economy.

Keywords

Acknowledgements

The views expressed in this paper are those of the author and do not represent the views of the Indonesian Financial Services Authority (OJK). The author gratefully acknowledges helpful comments from the anonymous reviewers and the Editor. The usual caveats apply.

Citation

Darmadi, S. (2016), "Ownership concentration, family control, and auditor choice: Evidence from an emerging market", Asian Review of Accounting, Vol. 24 No. 1, pp. 19-42. https://doi.org/10.1108/ARA-06-2013-0043

Publisher

:

Emerald Group Publishing Limited

Copyright © 2016, Emerald Group Publishing Limited

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