An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Ashiq Ali
The University of Texas at Dallas

Tai - Yuan Chen
University of Texas At Dallas

Suresh Radhakrishnan
University of Texas at Dallas

Abstract: We examine the association between family firms (i.e., firms that are managed or controlled by founding family members) and audit fees and find that family firms pay lower audit fees, ceteris paribus. Furthermore, the negative association between family firms and audit fees is driven by the interaction of family firms with audit risk. This suggests that family firms have lower audit fees because of their ability to effectively monitor operating managers and thereby reduce control risk. We then examine the relationship between earnings management, auditors’ fees (i.e., audit and non-audit fees) and family firms. The evidence indicates that non-family firms pay a premium for earnings management through non-audit fees. This result also holds for family firms with professional CEOs, indicating that family firms with family CEOs have lower control risk and less earnings management.

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