Journal article
An Auditor's Perspective of Executive Incentive Pay and Dividend Payouts in Family Firms
Journal of Family and Economic Issues, Vol.42(4), pp.697-714
2021
Abstract
In family firms, where the family and the business domains are intertwined, conflicts from one domain can spill over to the other. Agency conflicts in the business domain can spread to the family domain and ruin the well-being of the families. Agency theorists suggest that corporate governance tools such as performance-based incentive pay and dividend payouts can be used to mitigate agency conflicts in widely-held firms. Previous studies in family firms, however, show inconclusive results. This paper aims to investigate whether incentive pay and dividend payouts alleviate agency conflicts in family firms, from an auditor's perspective. Audit research shows that audit fees are higher for firms (auditees) with more severe agency problems. Thus, an audit fee premium (discount) can be a proxy for the severity (mildness) of agency conflicts. If a governance tool exacerbates (mitigates) agency conflicts in a family firm, it is expected to lead to an audit fee premium (discount). Using data from 150 largest listed companies in Hong Kong, the analyses show that the impacts of incentive pay and dividend payouts on audit fees are not uniform. Auditors view the governance tools as effective in mitigating agency conflicts only in some settings. This implies that the owning families should be cautious when implementing a governance tool. In some situations, a governance tool may aggravate agency conflicts in the business domain, which then can spill over to the family domain and adversely affect the family welfare.
Details
- Title
- An Auditor's Perspective of Executive Incentive Pay and Dividend Payouts in Family Firms
- Authors
- Pattarin Adithipyangkul (Author) - Curtin UniversityH. Y. Hung (Author) - Open University of Hong KongT. Y. Leung (Corresponding Author) - Open University of Hong Kong
- Publication details
- Journal of Family and Economic Issues, Vol.42(4), pp.697-714
- Publisher
- Springer New York LLC
- DOI
- 10.1007/s10834-020-09729-1
- ISSN
- 1573-3475
- Organisation Unit
- School of Business and Creative Industries
- Language
- English
- Record Identifier
- 99708571402621
- Output Type
- Journal article
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- Economics
- Family Studies
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