The Role of Auditing in Small Private Family Firms: Is it About Quality or Credibility?

Abstract

This paper is one of few that investigate the role of auditing in family firms. Our results suggest that family firms are less likely to use Big 4 audit firms than the non-family firms in our sample of small private Finnish firms. More specifically, we find that an increase in family ownership decreases the likelihood that a Big 4 audit firm will be engaged. Because of our Finnish database we are also able to differentiate between the demand for Big 4 audit firms, other highly qualified certified auditors and non-certified auditors. Our results show that family ownership has no impact on the demand for certified auditor services. Also, contrary to most previous studies on the demand of audit quality in private firms, leverage does not have a significant effect in our sample of small private family firms.