Ownership Concentration, Family Control, and Auditor Choice: Evidence From Iranian Companies

2. Theoretical Foundations And Hypothesis Development

There have been various points of view regarding ownership concentration in the accounting literature. On the one hand, based on active monitoring hypothesis, it can be argued that the major shareholders are long-term-oriented investors who have great motivation and ability to monitor managers actively (Lin & Liu, 2009). On the other hand, proponents of self-interest hypothesis believe that it is more likely that major investors take advantage of special interests, such as access to private information that could be used for trading purposes. When ownership is concentrated, it seems plausible that major shareholders use their controlling rights in order to gain self-interest and exploit minor shareholders. Based on this reasoning, Darmady (2016) found that in companies with concentrated ownership structure, agency problems often occur between major and minor shareholders, because in these companies, major shareholders seek their self-benefit at the expense of minor shareholders. These issues lead to information asymmetry in the capital market. In such conditions, the demand for high-quality independent auditors as a monitoring tool is enhanced. Thus, regarding the above, the first hypothesis is presented as follows: