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Linear Prices Equilibria and Nonexclusive Insurance Market

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Author Info

  • Frédéric Loss
  • Gwenaël Piaser

Abstract

Family businesses are an important part of the world economy (Anderson and Reeb, 2003) and show significant differences in their corporate governance compared to non-family firms. Although displaying evident unique features, family firms have received relatively little attention as distinct from their equivalents in publicly held firms. Our study contributes to this growing research and investigates empirically the relationship between family shareholding and audit pricing. Using a sample of 3291 firm-year observations of major U.S. listed companies, for the period 2006- 2008, our results demonstrate that audit fees is negatively associated to family shareholding after taking into account unobservable firm effects, time-varying, industry effects and traditional control variables. The empirical results are robust to alternative family shareholding measures and estimation model specifications. Our results are consistent with the convergence-of-interests hypothesis suggesting that family firms face lower manager/shareholders agency costs. Auditors charge lower fees for family firms because of lower information asymmetry and risk as the controlling family is well informed about the firm and is better able to monitor managerial decisions.

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Bibliographic Info

Paper provided by Department of Research, Ipag Business School in its series Working Papers with number 2014-042.

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Length: 12 pages
Date of creation: 01 Jan 2014
Date of revision:
Handle: RePEc:ipg:wpaper:2014-042

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Related research

Keywords: Family firms; Audit Fees; Agency Conflicts; Corporate Governance;

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References

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  1. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
  2. David Martimort & Lars Stole, 2001. "The Revelation and Delegation Principles in Common Agency Games," CESifo Working Paper Series 575, CESifo Group Munich.
  3. Laurence Ales, 2009. "Adverse Selection and Non-exclusive Contracts," 2009 Meeting Papers 854, Society for Economic Dynamics.
  4. Bisin, Alberto & Guaitoli, Danilo, 1998. "Moral Hazard and Non-Exclusive Contracts," CEPR Discussion Papers 1987, C.E.P.R. Discussion Papers.
  5. Michael Peters, 1999. "Common Agency and the Revelation Principle," Working Papers peters-99-01, University of Toronto, Department of Economics.
  6. Rothschild, Michael & Stiglitz, Joseph E, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 630-49, November.
  7. Charles M. Kahn & Dilip Mookherjee, 1998. "Competition and Incentives with Nonexclusive Contracts," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 443-465, Autumn.
  8. Helpman, Elhanan & Laffont, Jean-Jacques, 1975. "On moral hazard in general equilibrium theory," Journal of Economic Theory, Elsevier, vol. 10(1), pages 8-23, February.
  9. Laurence Ales & Pricila Maziero, 2009. "Adverse Selection and Non-Exclusive Contracts," GSIA Working Papers 2010-E61, Carnegie Mellon University, Tepper School of Business.
  10. Andrea Attar & Arnold Chassagnon, 2006. "On moral hazard and nonexclusive contracts," PSE Working Papers halshs-00589101, HAL.
  11. Arnott, Richard J & Stiglitz, Joseph E, 1988. " The Basic Analytics of Moral Hazard," Scandinavian Journal of Economics, Wiley Blackwell, vol. 90(3), pages 383-413.
  12. Richard Arnott & Joseph Stiglitz, 1991. "Equilibrium in Competitive Insurance Markets with Moral Hazard," NBER Working Papers 3588, National Bureau of Economic Research, Inc.
  13. Christine A. Parlour & Uday Rajan, 2001. "Competition in Loan Contracts," American Economic Review, American Economic Association, vol. 91(5), pages 1311-1328, December.
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