Family firms are characterized by a close relationship between ownership and management that facilitates monitoring of managers’ activities. Hence, family owners face less severe agency costs, in particular the type I cost is mitigated (Ali et al. 2007). At the same time, family ownership and managers could undertake activities detrimental to minority shareholders and potential investors in a bid to increase their own welfare, leading to the so-called entrenchment effect. Thus, type II agency costs remains a serious concern for this type of firm (Srinidhi et al. 2014; Anderson et al. 2009; Demsetz and Lehn 1985). In order to reduce this second type of agency costs, auditors, considered as independent third parties, have to monitor main firms’ decisions and reporting (Jensen and Meckling 1976; DeAngelo 1981). The purpose of this study is to investigate auditors’ ability to mitigate type II agency costs in family firms by empirically analyzing audit opinions in the presence of earnings management. Family firms play a fundamental role in today’s economy. For instance, they represent a third of the Fortune Global 500, about 40 percent of the European listed companies and their influence is expected to grow in the coming years (La Porta et al. 1999; McKinsey&Company 2014). Past studies show that they differ from other types of company both in their behavior and performance (Prencipe et al. 2011; Prencipe et al. 2008; Morck et al. 2005; Villalonga and Amit 2006). Family firms’ ownership structure has also implications for financial reporting practices, considering both earnings management and disclosure decisions (Achleitner et al. 2014; Wang 2006; Ali et al. 2007). […]
Key-Words: Revisione contabile e di bilancio