Auditor appointment strategy and intragroup value transfers: Evidence from family business groups

Yan Leung Stephen CHEUNG, In-Mu HAW, Weiqiang TAN, Wenming WANG

Research output: Contribution to journalArticlespeer-review

Abstract

Family business groups (FBGs) typically control several member firms and can hire a single auditor or multiple auditors to audit their member firms. This article examines what type of auditor appointment strategy constrains intragroup value transfers within FBGs. Analyzing related-party transactions (RPTs) within FBGs in Hong Kong, this study provides evidence that FBGs with multiple auditors undertake more intragroup value transfers than FBGs with a single auditor. However, the adverse effect of multiple-auditor appointments is mitigated by a stronger board and higher financial reporting comparability among member firms. Using an alternative measure of intragroup value transfers, we also find that the market perceives multiple-auditor appointments as impairing audit effectiveness. Overall, our findings offer the new insight that controlling families can exploit the appointment of multiple auditors as a “divide and conquer” strategy which undermines the monitoring role of auditors against intragroup value transfers, but stronger corporate governance of member firms can mitigate the adverse effect. Copyright © 2021 The Author(s).
Original languageEnglish
JournalJournal of Accounting, Auditing & Finance
Early online date23 Feb 2021
DOIs
Publication statusE-pub ahead of print - 23 Feb 2021

Citation

Cheung, Y.-L., Haw, I.-M., Tan, W., & Wang, W. (2021). Auditor appointment strategy and intragroup value transfers: Evidence from family business groups. Journal of Accounting, Auditing & Finance. Advance online publication. doi: 10.1177/0148558X21992658

Keywords

  • Family business groups (FBGs)
  • Multiple auditors
  • Intragroup value transfers
  • Related-party transactions (RPTs)
  • Board of directors

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