Family firm, audit fee and auditor choice: Australian evidence

Arifur Khan*
Nava Subramaniam

School of Accounting, Economics and Finance, Deakin University, Australia

THIS IS A WORKING PAPER ONLY

PLEASE DO NOT QUOTE WITHOUT PERMISSION OF THE AUTHORS

_________________________
*School of Accounting, Economics, and Finance, Deakin University. 221 Burwood Highway, Burwood,
Victoria, 3125 Australia. Tel: +61 03 924 46857, Fax: +61 03 924 46283, E-mail: arifur.khan@deakin.edu.au.

Family firm, audit fee and auditor choice: Australian evidence

Abstract: This study aims to examine the relation between family ownership and control, and

audit fee and auditor choice in Australian companies. The dominance of concentrated
ownership and related institutional features of Australia offers an interesting opportunity to
examine the key role family ownership and control plays as a determinant of audit fee as well
as auditor choice. Agency theory suggests a mixed perspective on the agency problems that
are inherent in family firms and thence their implications for audit pricing and auditor choice.
We find that family firms pay higher audit fee than non-family firms. Moreover, family share
ownership is related with higher audit fee. This is consistent with supply-side theory (i.e.,
higher assessed client-related risks due to family owners expropriation, poor monitoring of
management, and higher information asymmetry) on the determinants of audit fee. We also
find that compared to non-family firms, family firms are more likely to hire top-tier
accounting firms. This tendency may stem from greater agency problem between owners and
managers in family firms.

Keywords: Family ownership; audit fee and auditor choice

1. Introduction
This study examines the relation between family ownership and control and audit fee
and auditor choice in Australian companies. Family firms are the prevalent form of business
organization internationally; one measure of this is the portion of family enterprises to
registered companies (Cadbury, 2000). The estimated range is from 75% in the UK to greater
than 95% in India, Latin America and the Far and Middle East. Glassop (2009, cites
Smyrnios and Walker, 2003) stating that in Australia, 67% of the firms that constitute the
economy are family businesses. She also suggests that more than half of employment growth
is generated by these firms and around $3.6 trillion is contributed to the Australian economy.
Burkart et al., (2003) state that family ownership is common among firms that are publicly
traded as well as firms that are held privately and that the majority of firms in the world are
controlled either by the founder or the family or heirs of the founders.
There has been extensive research that examines the determinants of audit fee/ pricing
(see for example, Firth, 1985; Francis and Simon, 1987; Chan et al., 1993). These studies
have focused mainly on the firm specific factors such as auditee size, auditee complexity,
audit firm size etc. that influence the level of fee paid for providing audit services. None of
these studies incorporate the effect of ownership concentration, particularly family ownership
and control on audit fee as well auditor choice.1 Given that the ownership structures are less
diffuse than previously assumed (see for example, La Porta et al., 1999), this research aims to
understand the effect of concentrated ownership such as family ownership on audit and
financial reporting process and hence on the level of audit fee and auditor choice in
Australian companies.
According to agency theory, on one hand, the incentives for family firms to extract
private benefits as well as their propensity to influence the financial reporting process are
1

A study by Mitra et al. (2007) examines the impact of ownership characteristics on audit fee.

high and thus are likely to raise agency costs. Consequently, increasing agency costs entail
higher audit risk assessment and audit efforts, resulting in higher audit fee. At the same token,
family ownership is seen to improve internal monitoring and reduce conflict of interest
inherent in manager-owner arrangements and thus reduce audit effort and fee subsequently.
Clearly, omitting concentrated ownership such as family ownership from the analyses of
audit pricing increases the risk of incorrect conclusions on the behaviour of the auditors.
While explaining the issue of auditor choice prior research tends to focus on the
differences between big 4 audit firms and smaller audit firms with respect to audit quality.
DeAngelo (1981) argue that the big 4 auditor provide better quality audits because they have
more reputational and legal risk. In the context of a relationship between ownership and
auditor choice in the UK, Lennox (2005) finds that managerial ownership is related to the
demand for big 4 audits in private firms but not in public firms. This suggests that private
firms may have more reason to engage a higher quality auditor to perform a monitoring
function than large, listed firms. Lennox further argues that the monitoring value of auditing
may be lower for public firms because these firms are subject to monitoring by a stock
market.
Previous study by Carey et al. (2000) investigates the demand for audit quality in
family firms and finds that the demand for voluntary audits increases when agency costs
increase. It is argued that the incentives for family firms to extract private benefits as well as
their propensity to influence the financial reporting process are high which raises agency
costs (Anderson and Reeb, 2003). Therefore, family firms are more likely to appoint big 4
auditors to ensure high quality audit. It is also argued that family ownership may improve
internal monitoring and reduce conflict of interest inherent in manager-owner arrangements.
This implies that family firms are less likely to appoint big 4 auditors to due to reduced

agency costs. These two conflicting arguments suggest that the choice of big 4 auditor is an
empirical issue.
Agency theory provides a mixed perspective on agency problems in family firms. On
the one hand, families are assumed to be better monitors of managers than other types of
large shareholders, suggesting that lack of alignment between managers and owners (referred
to here as Agency Problem I) might be less prevalent in family than in non-family firms
(Anderson and Reeb, 2003). On the other hand, controlling families may have an incentive
and the ability to extract private benefits at the expense of minority shareholders (referred to
here as Agency Problem II) (Fama and Jensen, 1983; Shleifer and Vishny, 1997).
Accordingly Villalonga and Amit (2006) suggest that controlling families have greater
incentives for both monitoring and expropriation, and so Agency Problem II may overshadow
Agency Problem I in these firms.
Extant literature on audit fee and auditor choice in relation to family versus non-family
firms is scant and limited. The prevalence of family controlled firms in most countries (La
Porta et al., 1999) and the familys incentive to extract private benefits raises the question of
how family firm influence monitoring mechanisms such as auditing. In particular given that
different types of agency problems may be exacerbated and mitigated within family
controlled firms, further study into their implications for auditor choice as well as audit risk
assessments and thereon audit efforts and audit pricing appear timely and warranted.
The Australian market provides a desirable setting for this investigation as the legal
protection for shareholders is not as strong compared to that of the UK and US (La Porta et
al., 1999; Setia-Atmaja et al., 2009). Lamba and Stapledon (2001) suggest that the level of
ownership concentration in the Australian capital market is high and that it is characterized
by high private benefits of control. They suggest that one potential reason for the high level
of private benefits of control is that corporate control in the Australian market is less active
5

and in turn makes the Australian market less efficient and taking over a company with major
shareholder is more complex which may possibly lead to distortions in the market and
concealment of management that are ineffective (Dignam, 2007). Evidence of fewer hostile
takeovers in Australia was provided by Dignam (2007) which suggests that there is a
divergence of interest between concentrated and dispersed shareholders in Australia in the
form of rent extraction compared to the US and the UK. Dignam and Galanis (2004) also
suggest that even though the size of the market in Australia is small compared to the US or
UK, there has been no particular success in the institutional investor activism in Australia
despite their significant presence in the Australian listed market. Finally, Australia, Canada
and the UK have lower risk of litigation compared to the US (Khurana and Raman, 2004).
This dominance of concentrated ownership and other institutional features of Australia (Dignam and
Galanis, 2004) therefore offer an opportunity to examine the key role ownership concentration,
namely family ownership play in determining audit pricing as well as auditor choice in Australia.

Based on Australian data for the year 2008, our result indicates that family firms pay
higher audit fee than non-family firms. Moreover, family share ownership is related with
higher audit fee. This is consistent with supply-side theory (i.e., higher assessed client-related
risks due to family owners expropriation, poor monitoring of management, and higher
information asymmetry) on the determinants of audit fee. We also find that compared to nonfamily firms, family firms are more likely to hire top-tier accounting firms. This tendency
may stem from greater agency problem between owners and managers in family firms.
We extend the literature relating to audit pricing and auditor choice from two
perspectives. First, we investigate the audit pricing and big 4 auditor choice in family firms.
Second, our study uses the dataset from an Australian environment that is different, in terms
of institutional characteristics, from that of developed countries as far as auditing and the
overall financial system are concerned.
6

The remainder of the paper is structured as follows. Section 2 provides the theoretical
background. This is followed by an outline of the research design. The results are discussed
in section 4 and section 5 outlines further analyses and robustness tests. Section 6 presents
concluding remarks.
2. Literature review and hypotheses development
Agency theory suggests that family firms may either mitigate or exacerbate agency
problems. It is asserted that the propensity that firms will demand independent audits on a
timely basis is a function of the extent of divorce between ownership and control (AbdelKhalik, 1993). Demsetz and Lehn (1985) find evidence that controlling shareholders have
strong incentives to diminish agency problems and maximize firm value. Drawing from the
agency theory, Abdel-Khalik (1993) argues that one of the consequences of the
unobservability of the agents behaviour is the tendency to enhance internal control and other
governance mechanisms. Using similar arguments, Chan et al. (1993) hypothesise that the
extent of audit services demanded will be a function of corporate ownership concentration,
where companies with a diverse ownership structure would require a much more extensive
and higher quality audits than the statutory minimum requirements. From the demand side
perspective it may thus be expected that companies with controlling shareholders, in
particular family control, will require less-extensive audit, proxied by the audit fee.
An alternative argument is that concentrated ownership creates incentives for
controlling shareholders such as family members to expropriate wealth from other
shareholders (Fama and Jensen, 1983). More generally, firms with large, undiversified
owners such as founding families may forgo maximum profits because they are unable to
separate their personal financial preferences with those of outside owners (Burkart et al.,
2003). Family members as controlling shareholders may extract private benefits from the
7

firm at the cost of minority shareholders. They can influence the financial reporting process
as well. As a result, it is argued that having immediate family members on the board and the
management team could have a negative impact on the monitoring process of the company.
Such situations may increase the overall audit risk assessed by the auditors regarding their
clients and from the supply side perspective the auditors may in turn deploy more audit
efforts to minimise their audit risks resulting in higher audit fee.
There is however, no study that directly examines the relationship between family
control and audit fee in Australia. Additionally, existing literature on family control provide
competing and alternative predictions about the impact of family control on audit fee.
Therefore, the proposed research hypotheses are:
H1: There is a significant difference in audit fee between family controlled firms and nonfamily firms.
H1a: There is a significant relationship between family ownership and audit fee.
It is argued that big 4 audit firms provide high quality audit service which is characterised by
probability of detecting and reporting material financial errors and omissions (DeAngelo, 1981).
Additionally, because of their size big 4 audit firms are better able to withstand pressure and are more
likely to work independently. In this study, it is argued that big 4 audit firms will be more motivated
to withstand management pressure from family firms, because of their knowledge specialisation and
incentives to maintain their reputation. Thus it is expected that big 4 audit firms will charge a
premium for their quality. Non-big 4 firms, on the other hand, tend to compete more on audit price
and thus are likely to be more compliant to their family-controlled clients. Therefore, we hypothesise
that:

H2: Family firms pay higher audit fee to big4 auditors than non-big4 auditors.
Agency theory predicts that the demand for high quality auditing services increases
when agency costs increase. The expectation on the impacts that family ownership or control
has on the demand for audit quality are twofold in those family firms that deviate from the
8

single ownermanager case. One line of research (e.g., Chrisman et al., 2004) suggests that
firms with family ownership have lower agency costs. This indicates that family firms have
therefore less demand for audit quality. Other studies suggest that agency costs are higher in
family firms (e.g., Morck and Yeung, 2003). This in turn would result in higher demand for
audit quality. Previous studies also suggest that the ownermanager agency costs in family
firms (or firms with other block holders) increase with an increase in nonfamily ownership
(Carey et al., 2000). DeAngelo (1981) contend that big 4 audit firms provide high quality
audit service which is characterised by probability of detecting and reporting material
financial errors and omissions. Additionally, because of their size big 4 audit firms are better
able to withstand pressure and are more likely to work independently. We, therefore, argue
that quality audit as well as the choice of big 4 auditor could be influenced by family
ownership and control. Thus we hypothesise that:
H3: Family ownership is associated with the demand for audit quality proxied by big 4
auditor.
H3a: Family control is associated with the demand for audit quality proxied by big 4 auditor.
3. Methodology
3.1 Data and sample

The sample selection procedure is reported in Panel A of Table 1. The sample consists
of all the non-financial companies listed with ASX in the year 2008 and available in Connect
4 database. Consistent with the prior literature, we exclude 376 financial and utility firms
since they are controlled by different regulations and likely to have different disclosure
requirements and governance structure. We exclude 52 non-financial firms due to missing
information. Our final sample comprises of the remaining firms with a total of 1432
observations. The family ownership data is manually collected from the annual reports of the

companies. Therese reports are accessed through Connect 4 database. The financial variables

are collected from the FinAnalysis database.

From Panel B of Table 1, it is observed that family firms are present in around 16% of
the total sample. The family firms are prevalent in various sectors such as consumer staples
(8), energy (29), health care (31), industrials (52), information technology (33), material (66),
and telecommunication (6). We do not find any family firms in consumer discretionary
sector. This study control industry affiliations for empirical analysis.
<Table 1 about here>
3.2 Measuring family ownership and control
In this study one of our primary concerns is the identification of family firms because,
prior literature provides no commonly accepted measure or criterion for identifying a family
firm. La Porta et al. (1999) argue that 20% cut off point is usually enough to have effective
control of firm. Moreover, a number of previous studies use a 20% cut off point to identify
family firms (Achmad, 2007, Villalonga and Amit, 2006, Setia-Atmaja et al., 2009).
Therefore, we define a firm as family controlled firm where an individual, or group of family
members, hold at least 20% of a firms share (voting rights). Two variables are used to
estimate the impact of family firms: a binary variable that equals one for family firms and
zero otherwise (denoted as family control), and; the percentage of shares held by the family
as a group (denoted as family ownership). The variable family control captures the impact of
family control (i.e., 20% or more), while family ownership addresses the impact of different
levels of family holdings.
Family relationships and shareholdings pattern has been collected from annual reports
and company websites. According to ASX requirement, the listed companies are required to
disclose the pattern of shareholdings. This includes number of shares held by the directors,
top 20 shareholders and substantial shareholders. If a firm has at least one private individual
10

controlling 20% or more shareholdings, it is considered as a family firm. For example, in the
annual report of Oakton Limited, Paul Holyoake reports a 38.86% shareholding. Thus,
Oakton Ltd. is categorised as a family company. In contrast, the annual report of Coles Myer
Ltd. Reports two substantial shareholders Myer Family Investment Pty Ltd. and Maple
Brown Abbot Ltd. who own 5.03% and 5% shares, respectively. Coles Myer Ltd is therefore
classified as a non-family firm.
3.3 Model
We use two models in this study. They are discussed below:
Audit fee model
We use an OLS regression techniques to examine the relationship between family firm and
audit fee.
Audit fee = 0 + 1 (family firm) + 2 (control variables) + 3to11 (industry dummy) + 12to15 (year
dummy) +

(1)

The dependent variable audit fee is measured by taking the natural log of audit fee. The
control variables used in this study are non-family insider ownership, non-family blockholder
ownership, board independence, audit complexity proxied by inventory ratio and receivables
ratio, firm size, leverage, big 4, loss and non-audit fee. We also introduce industry and year
dummies. Non-family insider ownership is measured by taking the percentage of shares
owned by the directors other than the family members. Non-family blockholder ownership is
measured by taking the percentage of shares owned by the substantial shareholders other than
family members. These ownership variables are controlled to address the impact of
ownership by other groups of stakeholders. Board independence is calculated by taking the
proportion of independent directors on the board. The independent directors are likely to be
effective monitors and therefore, firms with independent directors are likely to incur lower
amount of audit fee. Inventory ratio is a ratio of inventory and total assets of the company.
11

Receivable ratio is a ratio of account receivables and total assets. Greater audit complexity
involves greater loss exposure in terms of audit risk. Moreover, the valuation of these items is
a complex task requiring a forecast of the future events and an analysis of subjectivity
determined issues on the part of client management (Simon and Taylor, 1997). Firm size is
measured by taking the natural log of total assets. Previous studies suggest that size is an
important determinant of audit fee (Simunic, 1980; Karim and Moizer, 1996; Ahmed and
Goyal, 2005). Leverage is calculated by taking the ratio of total debt and total assets. Big 4 is
a dummy variable equals one if the auditor is a big 4 auditor or a representative of a big 4
auditor and zero otherwise. It is expected that big4 audit firms will charge a premium for
their quality (Firth, 1997; Beattie et al., 2001). Prior research suggests that audit fee may be
determined by the amount of non-audit fee (see for example, Simunic, 1984; Palmrose, 1986
in the US; Ezzamel et al., 1996; McMeeking et al., 2006 in the UK. Therefore, we control for
the variable by taking the natural log of non-audit fee. Loss is a dummy variable equals one if
the company has a negative net profit after tax before extra ordinary items and zero
otherwise.
Auditor choice model
We use the following logit model to examine the relationship between family firm and
the choice of auditor.
Big 4 = 0 + 1 (family firm) + 2 (control variables) + 3to11 (industry dummy) + 12to15 (year
dummy) +

The dependent variable big 4 is a dummy variable equals one if the auditor is a big 4
auditor and zero otherwise. The definition of family firm is similar to the definition we used
in our audit fee model. The control variables used in this study are nonfamily insider
ownership, blockholder ownership, audit complexity proxied by inventory ratio and
receivables ratio, firm size, profitability and leverage. The definitions of all control variables
12

are identical to the definitions of the control variables used in the audit fee model. Grossman
and Hart (1982) suggest that leverage can induce managers to avoid value-decreasing
decisions if higher leverage increases managers threat of bankruptcy and loss of control.
Leverage may influence the choice of auditor. Following prior studies, controls for
differential audit complexity are included in the analyses (Chaney et al., 2004; Piot, 2005).
The variables size and complexity are included because audit effort is expected to increase
with the size and complexity of a client-firms operations. Because Johnson and Lys (1990)
find that a firms auditor choice is related to its profitability, the variable profitability, defined
as net profit after tax before abnormal items to total assets, is included as a control for the
potential effect of profitability.

4. Results
4.1 Summary statistics
In Table 2 we report the summary statistics of our sample companies. In Panel A we
present mean, median and standard deviation. The mean audit fee of the sample companies is
AUD 277,594. The mean family ownership is 40.5%. The mean ownership by the non-family
insider and blockholder are 16.7% and 28.3% respectively. The mean firm size is AUD 35.2
million. The negative average profitability probably suggests the adverse impact of Global
financial crisis on Australian companies.
Panel B of Table 2 presents difference of means tests for key variables between family
and non-family firms. Family firms represent around 16% of the sample. The proxies for
audit complexity variables, in particular inventory and receivable ratios, are statistically
indistinguishable between family and non-family firms. On average, family firms pay higher
audit fee than non-family firms. Blockholder and insider ownership are more prevalent in
family firms than in non-family firms. These differences are statistically significant. Family
13

firms appear to be less profitable than their non-fmaily counterparts. However, this difference
is statistically insignificant. On average, 48% of family firms and 41% of non-family firms
choose big 4 auditors.
<Table 2 about here>
Table 3 provides a simple correlation matrix for the variables. Family controlled firms
and family ownership have a positive relationship with audit fee. These two variables are also
positively correlated with big 4 auditors. Consistent with previous studies (see for example,
Anderson and Reeb, 2003; Setia-Atmaja et al., 2009) this study finds that family ownership is
negatively related with firm size and leverage. This table also shows that big 4 auditors are
positively correlated with audit fee.
<Table 3 about here>
4.3 Family firms and audit fee
We report the results of audit fee regressions in Table 4. In model 1 we examine the
impact of family control on audit fee. We find relatively strong evidence that family firm
pays higher audit fee than non-family firms. Specifically, we find that the coefficient estimate
on family control is positive and significant. This is consistent with the argument from the
supply side perspective that due to concentrated ownership family firm may experience
greater agency problem and incur higher amount of agency costs. This may influence auditor
to perceive higher assessed risk as well as charging higher audit fee to their family firm
clients. The fact that the coefficients of some other control variables are statistically
significant suggests that an audit fee of a firm is also influenced by other factors. In
particular, a positive significant coefficient of big4 auditor implies audit fee premium for
larger firms (Firth, 1997; Beattie et al., 2001).

The positive significant coefficient of

blockholder ownership suggests that as a part of their monitoring blockholder may induce
firms to purchase high quality and extensive audit service. In response to such clients
14

demand, auditors increase their engagement efforts and charge higher audit fee. The positive
significant coefficient of firm size implies that larger firms incur higher audit fee than smaller
firms (Simunic, 1980). A positive significant coefficient of non-audit fee suggests that
companies taking non-audit services pays higher audit fee than those who do not take such
services.
In mode 2 we examine the impact of family ownership on audit fee. We find a positive
significant coefficient of family ownership. This implies that larger percentage of family
ownership is related with higher amount of audit fee. This is also consistent with our
findings of family control in model 1. In model 3 we investigate whether family firms with
big4 auditors incur higher audit fee than family firms with non-big4 audit fee. We find a
positive (negative) significant coefficient of family firm interaction with big 4 (non-big4)
auditors. This implies that family firms pay big4 audit firms a premium for their quality audit
services.
<Table 4 about here>

4.4 Family firms and auditor choice

We report the results of auditor choice regressions in Table 5. In model 1 we examine
the impact of family control on auditor choice. We find relatively strong evidence that family
firms are more likely to choice big 4 auditors than non-family firms. Specifically, we find
that the coefficient estimate of family control is positive and significant. This also implies
that family firms are likely to have greater demand for audit quality because of higher agency
costs. The statistically significant coefficients of some other variable suggest that the choice
of auditor of a firm is also influenced by other factors. In particular insider ownership is
negative and marginally significant which implies that firms with higher percentage of insider
ownership are less likely to have quality audit as well as choice big 4 auditors. This is
15

consistent with the managerial entrenchment argument (Morck et al., 1988). A psotive
significant coefficient of blockholder ownership implies that presence of blockholders induce
managers to purchase higher quality audit. The positive and significant coefficient of audit
complexity proxied by inventory ratio implies that firms with more complexities are more
likely to have big 4 auditor. A positive significant coefficient of firm size implies that large
firms are more likely to have big 4 auditors. The marginally positive significant coefficient of
profitability implies that an increase in profitability is more likely to increase the possibility
to choice a big 4 auditor. In mode 2 we examine the impact of family ownership on auditor
choice. We find a positive significant coefficient of family ownership. This implies that firms
with larger percentage of family ownership are more likely to undergo rigorous audit and
choice big 4 auditors. This is also consistent with our findings of family control in model 1.

<Table 5about here>

5. Conclusion
We examine the relation between family ownership and control and audit fee and
auditor choice in Australian companies. Our result indicates that family firms pay higher
audit fee than non-family firms. Additionally, family share ownership is related with higher
audit fee. This is consistent with supply-side argument (i.e., higher assessed client-related
risks due to family owners expropriation, poor monitoring of management, and higher
information asymmetry) of the determinants of audit fee. We also explore the audit firm size
effect on the relationship between family ownership and audit fee. Our results suggest that family

firms pay higher audit fee to big 4 auditors. We also find that compared to non-family firms,
family firms are more likely to hire top-tier accounting firms. This tendency may stem from
greater agency problem between owners and managers in family firms.
We extend the literature relating to audit pricing and auditor choice from two
perspectives. First, we investigate the audit pricing and big 4 auditor choice in family firms.
16

Second, our study uses the dataset from an Australian environment that is different, in terms
of institutional characteristics, from that of developed countries as far as auditing and the
overall financial system are concerned.

17

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257-285.
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valuation: An empirical analysis, Journal of Financial Economics, 20, 293-315.
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20

Table 1: Sample description

Panel A
Number of firms available in Connect 4
Less
Financial and utility firms
Firms without necessary information
Total
Panel B
GICS Industry sector
Consumer Staples
Energy
Health care
Industrials
Information technology
Material
Telecommunication
Consumer discretionary
Total

1863
376
52
1432

Family
8
29
31
52
33
66
6
0
225

21

Nonfamily Total
Proportion
42
50
0.1600
181
210
0.1381
117
148
0.2095
132
184
0.2826
70
103
0.3204
536
602
0.1096
27
33
0.1818
102
102
0.0000
1207
1432
0.1571

Table 2: Summary statistics

Panel A: Summary statistics
Mean

Median

Std. Dev.

Inventory ratio

0.048

0.000

0.098

Receivable ratio

0.011

0.000

0.041

Big4

0.471

0.000

0.195

Board independence

0.690

0.714

0.180

Insider ownership

0.167

0.101

0.188

Family ownership

0.405

0.346

0.176

35.2

25.5

993.5

0.283

0.241

0.213

-0.310

-0.063

1.886

Total Audit fees (in AUD)

277,594

51,150

1,331,856

Audit fees for audit service (in AUD)

247,500

66,041

980,866

Audit fees for non-audit service (in AUD)

118,350

7,123

592,513

Family

Non-family

P values

Inventory ratio

0.041

0.049

0.234

Receivable ratio

0.010

0.010

0.982

Big4

0.480

0.410

0.050

Board independence

0.659

0.697

0.002

Insider ownership

0.186

0.233

0.000

1,017.5

592

0.045

0.31

0.18

0.000

-0.326

-0.245

0.548

Total Audit fees (in AUD)

389,647

259,216

0.000

Audit fees for audit service (in AUD)

265,698

165,721

0.026

Audit fees for non-audit service (in AUD)

200,489

142,703

0.032

Firm size (in million AUD)

Blockholder ownership
Profitability

Panel B: Difference of Means tests

Firm size (in million AUD)

Blockholder ownership
Profitability

22

Table 3: Correlation matrix

(1)
(1)
P value

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

(12)

1.000

(13)

(14)

1.000
-----

(2)

0.248

P value

0.000

1.000
-----

(3)

0.225

0.202

1.000

P value

0.000

0.000

-----

(4)

0.115

-0.082

-0.294

P value

0.014

0.081

0.000

-----

(5)

0.148

-0.149

-0.329

0.850

P value

0.002

0.001

0.000

0.000

-----

(6)
P value

-0.093
0.048

-0.048
0.304

-0.021
0.658

-0.025
0.595

-0.015
0.758

1.000
-----

(7)

1.000
1.000

-0.022

-0.085

-0.015

-0.055

-0.038

0.235

P value

0.639

0.072

0.758

0.241

0.419

0.000

1.000
-----

(8)

0.484

0.270

0.321

-0.013

-0.049

0.013

0.025

P value

0.000

0.000

0.000

0.780

0.293

0.789

0.590

-----

(9)
P value

0.014
0.759

0.014
0.761

-0.020
0.667

-0.039
0.403

-0.020
0.668

-0.345
0.000

-0.381
0.000

-0.053
0.260

1.000
-----

(10)

0.593

0.307

0.375

0.017

0.064

0.031

-0.015

0.849

0.002

P value

0.000

0.000

0.000

0.019

0.071

0.511

0.749

0.000

0.961

-----

(11)
P value
(12)

-0.201
0.000
-0.003

-0.182
0.000
-0.065

-0.285
0.000
0.028

0.763
0.000
-0.010

0.885
0.000
-0.045

0.001
0.977
-0.001

-0.041
0.383
0.074

-0.063
0.179
0.022

-0.024
0.609
0.039

-0.096
0.041
0.008

1.000
----0.003

P value

0.955

0.166

0.549

0.825

0.340

0.988

0.118

0.633

0.412

0.058

0.952

-----

(13)

0.067

0.028

0.057

0.032

-0.019

0.059

0.086

0.081

-0.138

0.014

-0.030

0.020

P value

0.153

0.546

0.229

0.493

0.689

0.207

0.069

0.084

0.003

0.772

0.529

0.673

-----

(14)

0.019

-0.027

-0.028

-0.045

-0.033

0.233

0.512

0.110

-0.581

0.016

-0.031

-0.003

0.259

1.000

P value

0.086

0.568

0.055

0.043

0.078

0.000

0.000

0.019

0.000

0.728

0.505

0.954

0.000

-----

1.000

1.000

1.000

(1) Big 4; (2) board independence; (3) blockholder ownership (4) family control (5) family share ownership (6) inventory ratio (7) leverage (8) non-audit fee
(9)loss (10) total audit fee (11) insider ownership (12) receivable ratio (13) profitability ratio (14)firm size

23

Table 4: Family ownership, control and audit fee

Model 1
Intercept

P value

Coefficient

P value

Coefficient

P value

6.272

0.000

6.287

0.000

6.266

0.000

0.931

0.003
0.264

0.025

-0.350

0.002

0.308

0.002

Family control*Big4
Family control*(1-Big4)
Non-audit fees

Model 3

Coefficient
Family share ownership
Family control

Model 2

0.539

0.000

0.540

0.000

0.569

0.000

-0.234

0.268

-0.489

0.187

-0.241

0.255

Inventroy ratio

0.064

0.817

0.091

0.742

0.065

0.815

Receivable ratio

0.276

0.722

0.038

0.961

0.284

0.713

Size

0.029

0.068

0.031

0.059

0.030

0.068

Big 4

0.529

0.000

0.525

0.000

0.547

0.000

Loss

0.014

0.836

-0.003

0.968

0.013

0.841

Leverage

0.340

0.141

0.291

0.206

0.341

0.140

Board independence

0.212

0.164

0.209

0.170

0.211

0.168

Blockholder ownership

0.574

0.000

0.588

0.000

0.561

0.000

Insider ownership

Adjusted R squared
F stat

0.781

0.778

0.774

197.986

197.587

181.36

24

Table 5: Family ownership, control and auditor choice

Model 1
Intercept

Coefficient

P value

Coefficient

P value

-1.310

0.091

-1.341

0.084

0.985

0.026

Family share ownership

Family control
Insider ownership

Model 2

0.353

0.034

-1.209

0.033

-1.396

0.053

Blockholder ownership

1.940

0.000

1.974

0.000

Size

0.027

0.012

0.026

0.025

Leverage

0.295

0.624

0.271

0.647

Inventroy ratio

1.542

0.047

1.558

0.045

Receivable ratio

0.882

0.620

0.812

0.646

Profitability

0.098

0.103

0.100

0.100

Board independence

1.920

0.000

1.921

0.000

McFaden R squared

LR Stat

25

0.241

0.238

91.492

91.159