The Impact of Family Ownership on Quality and Disclosure of Internal Control in Pakistan

• Main Authors: Imran Abbas Jadoon, Umara Noreen, Usman Ayub, Muhammad Tahir, Naima Shahzadi
• Format: Article
• Language: English
• Published: MDPI AG 2021-08-01
• Series: Sustainability
• Subjects: family-owned firms; entrenchment effect; alignment effect; internal control quality; internal control disclosure
• Online Access: https://www.mdpi.com/2071-1050/13/16/8755

The role of family owners in the internal control environment is characterized by contradictory theoretical arguments i.e., entrenchment and alignment behavior. Therefore, the objective of this study is to investigate the behavior exhibited by family owners concerning the internal control environment in an underdeveloped regulatory setting. The study collected both primary and secondary data to use a multivariate regression research design to investigate the impact of family owners and CEOs on the internal control quality and disclosure of enterprises. The results of the current study demonstrated that family owners and family CEO have a negative impact on the internal control quality and disclosure, which validates the entrenchment behavior exhibited by family owners in the Pakistani setting. The results of the current study imply that policymakers should promote strict policy initiatives regarding the effectiveness of internal controls and their reporting so that companies are compelled to have better engagement in internal control practices for the protection of minority shareholders.