Family Firms, Audit Committees and Audit Fees: Evidence from an Emerging Economy

This study examines the relationship between family firms and audit fees using data from an emerging market, namely Malaysia. Given the scarcity of research on family firms and audit fees especially in countries where family firms are prevalent, this study complements the body of knowledge by examining the impact of family firms on audit pricing in a unique institutional setting where the agency problems are likely to occur between controlling and non-controlling shareholders, instead of agency problems that are likely to arise between the owners and managers. Previous studies on audit fees involving public listed companies in Malaysia have yet to investigate the association between family firms and audit fees. The current study, therefore, addresses the omission in the literature by examining the association between family firms and audit fees using a sample of 216 public listed firms from the year 2009. In addition, the current study also investigates the relationship between audit committee (AC) characteristics (independence, financial expertise, size and diligence) and audit fees. The results show that family firms' demand lower audit effort as compared to non-family firms. This study reveals that ACs which are characterized by the higher proportion of independent director, ACs that are diligent and ACs with greater sizes demand a higher level of assurance and thus support the auditor's demand for more audit effort which leads to higher audit fees.