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Family firms, political connections and audit fees: evidence from Malaysian firms

Chwee Ming Tee (Department of Accounting and Finance, Monash University – Malaysia Campus, Bandar Sunway, Malaysia)

Managerial Auditing Journal

ISSN: 0268-6902

Article publication date: 6 September 2018

Issue publication date: 11 October 2018

870

Abstract

Purpose

The purpose of this study is to examine the association between family firms and audit fees in an emerging economy setting. As family firms either face Type 1 or Type 2 agency problem, it seeks to gain a better understanding on family firms in an emerging economy such as Malaysia. Additionally, this study introduces political connections to investigate whether it can moderate the association between family firms and audit fees. Political connection is chosen as an important institutional feature because of its many and well-documented politically connected firms and pervasive political patronage system in Malaysia.

Design/methodology/approach

Based on a dataset of 750 firms or 7,848 firm-year observations from 2002 till 2015, panel regression analysis is used to investigate the research questions. As a robustness test, Heckman’s self-selection model is used to deal with the self-selection problem.

Findings

The results reveal that family firms are associated with higher audit fees, indicating that Type 2 dominates Type 1 agency problems in Malaysia. This positive relationship is stronger in family firms which are older and have higher family controlling shareholding. Further, the association is exacerbated if it is also connected to the ruling elite.

Originality/value

This study contributes to the literature by showing that institutional feature such as family firms and political connections can produce different firm outcomes between emerging and advanced economy, particularly in auditing. This study responds to calls for more research on auditing in family firms, particularly in emerging economy.

Keywords

Acknowledgements

The author acknowledges financial support from Monash University Seed Grant (B-10-17) and helpful comments from one anonymous referee and seminar participants at the 2017 European Accounting Association Conference in Valencia, Spain.

Citation

Tee, C.M. (2018), "Family firms, political connections and audit fees: evidence from Malaysian firms", Managerial Auditing Journal, Vol. 33 No. 6/7, pp. 613-632. https://doi.org/10.1108/MAJ-06-2017-1585

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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