Do Management Training Grounds Reduce Internal Auditor Objectivity and External Auditor Reliance? The Infuence of Family Firms

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Journal of Business Ethics

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We test competing theoretical perspectives of family frm governance in two separate studies by investigating whether family frm control moderates the detrimental efect of a management training ground (MTG) on internal auditor objectivity and on the external auditor’s decision to rely on the internal audit function (IAF). In Study 1, we assess the objectivity of internal auditors working under an IAF that serves as a MTG or non-MTG and located in a family or non-family frm. A key result of Study 1 is the mitigating role of family frm control, as we fnd that the objectivity of internal auditors is reduced when the IAF serves as a MTG but only in non-family frms. When the IAF is located in a family-controlled frm, the objectivity of internal auditors is unafected by the opportunity to be promoted into management positions outside of the IAF. In Study 2, we utilize a controlled laboratory experiment with experienced Big 4 auditors as participants and examine their decision to rely on an IAF when it serves as a MTG. Our analyses indicate that external auditors reduce their reliance on non-family frm IAFs that are also MTGs and their decision is fully mediated by the perceived objectivity of non-family frm internal auditors. In contrast, external auditors’ reliance on family frm IAFs and their perceptions of internal auditor objectivity are unafected under a MTG regime. The results of Studies 1 and 2 provide support for the alignment perspective of family frms.


Family Firms; Management Training Ground; Internal Auditor Objectivity; External Auditor Reliance; Corporate Governance


Accounting | Business



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