DOES THE PRESENCE OF FAMILY MEMBERS REDUCE AUDIT QUALITY?: EVIDENCE FROM FAMILY FIRM IN INDONESIA

Abstract

Our research aims to investigate family presence on audit quality. We use a total of 1,960 observations from 182 family companies listed on the Indonesia Stock Exchange. The research method that we use is explanatory research through logistic regression. The results of the study provide empirical evidence that the presence of the family, especially the founder as president director and family members who sit on directors and commissioners, is indicated to reduce audit quality. Our research also provides indications of a stronger entrenchment effect in reducing audit quality in family firms in Indonesia. Family companies in Indonesia tend to pay lower audit fees and use local public accounting firms. Our research has broad implications for two things. The first is for investors in investing, especially to assess the audit quality of family companies. Investors are also expected to assess audit quality as one of the considerations in making an investment. Second, for family companies in improving corporate governance and credibility by involving KAPs from Big4.