Chief executive officer retirement and auditor’s risk assessment

Abstract

Purpose This study aims to examine the unique nature of family firms by investigating the moderating effect of chief executive officer (CEO) identity on CEO career horizon and the auditor’s client risk assessment. Consistent with literature on family businesses, the level of CEO attachment to socio-emotional wealth (SEW) varies among family businesses. Design/methodology/approach This study used a longitudinal sample of 2,063 non-financial family firm-year observations from 2005 to 2016 listed on the Bursa Malaysia. The study used the general method of moments (GMM), which controls for endogeneity concerns. Findings The results reveal that, without the moderating effect of CEO identity, the relationship between CEO career horizon and auditor’s risk assessment is positive, which suggests that the auditor’s risk perception of retiring CEOs is very high. However, the interaction of CEO identity reverses the relationship as evidenced by the negative and significant coefficient on the interacted terms. The finding suggests that the auditor’s perceived risk associated with CEO career horizon is lower in family firms with CEOs affiliated to family members or in which the CEO has an equity stake. Overall, the findings provide compelling evidence that the extent of the CEO’s attachment to the firm’s SEW affects the auditor’s client risk assessment. Practical implications The findings of the study serve as an enlightenment to policymakers such as Bursa Malaysia and Security Commission that within the family-controlled firms, differences still exist; therefore, there might be a need for future regulatory initiative to cater for the specific need of family-controlled firms. Originality/value The study contributes to prior literature by departing from the agency theory adopted in previous studies on auditor choice in family firms under the assumption that family firms are homogenous.

Microfoundations in Family Firm Research: A Review and Agenda for Theoretically Driven Future Inquiry

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Family involvement in ownership and governance and internal auditing quality

“…The SEW perspective suggests that family CEOs have a greater incentive to protect the family firm’s identity than non-family CEOs (Abdulmalik et al , 2020; Ghafoor et al , 2022) and thus they would be more willing to consider non-economic goals (Garcés-Galdeano and García-Olaverri, 2020). Hence, when the family priority is to preserve its identification with the firm (i.e.…”

Corporate integrity, external assurance and sustainability reporting quality: evidence from the Malaysian public listed companies

“…The governance structure of companies includes policies, rules and procedures for organizational management and control (Ong and Djajadikerta, 2017). The corporate governance practice of firms matters much in terms of the quality of corporate disclosure (Fama and Jensen, 1983;Keasey and Wright, 1993;Abdulmalik et al, 2020). Past investigations have documented how corporate governance mechanisms, such as board attributes and ownership, influence sustainability practices (Akbas, 2016;Katmon et al, 2019;Odoemelam and Okafor, 2018;Shahab and Ye, 2018;Young and Thyil, 2014;.…”

“…The governance structure of companies includes policies, rules and procedures for organizational management and control (Ong and Djajadikerta, 2017). The corporate governance practice of firms matters much in terms of the quality of corporate disclosure (Fama and Jensen, 1983; Keasey and Wright, 1993; Abdulmalik et al. , 2020).…”