2025 - Reprints: Finance and Accounting
Are family firms less audit-risky? Analysing audit fees, hours and rates, Accounting and Business Research, 1–27, 2024.
M. Abudy, E. Amir and E. Shust
(Reprint No.: 446)
Research No.: 06224100
https://doi.org/10.1080/00014788.2024.2415894
We examine differences in audit scope between publicly-listed family and non-family firms in Israel, using a unique dataset that includes external and internal audit hours, audit fees and billing rates. We find that external auditors charge lower average hourly rates for family firms than for non-family firms. However, audit effort, measured as the number of audit hours, is lower in family firms than in non-family firms, but the difference is not statistically significant. Moreover, the number of internal audit hours is smaller, on average, in family firms than in non-family firms. Our findings suggest family ownership affects audit mainly when the family is actively involved in the firm's management. We also examine a subsample of eponymous family firms and obtain similar results. Analysis of a sub-sample of firms that switched from family to non-family status or vice-versa shows that audit fees and hourly rates decrease (increase) when a firm changes its status from non-family (family) to family (non-family) status. Lastly, we find that the reporting quality of family firms is higher than that of non-family firms. Overall, our results suggest that auditors perceive family firms to be less audit-risky.
Security prices are affected by information strategically disclosed by managers as well as by informed trading of outsiders and vice versa. However, market frictions, such as short-selling costs and constraints, significantly affect trading in financial markets. In this article, we examine the joint determination of voluntary disclosure, security prices, and short-selling, and address the following issues: How do major market frictions affect managerial disclosures? How do disclosures influence strategic informed trading in the presence of frictions? What does the interaction of strategic disclosure and informed trading imply for price efficiency? We find that short-selling (trading) costs have a substantial impact on the equilibrium disclosure policy and its interaction with informed trading and price efficiency. Because of endogenously binding short-sale constraints, better-informed traders can either deter or encourage disclosure, thus reconciling mixed available evidence on the relation between short-sale constraints and managerial disclosure. Furthermore, price efficiency need not improve with managers' information endowment because greater disclosure can endogenously inhibit informed short-selling in equilibrium. Our analysis also generates novel empirical predictions relevant to the literature on managerial disclosure, shorting, and price efficiency.
