Experimental study of alignment and entrenchment theories in explaining the impact of family ownership on the relationship between the financial reporting optimistic tone and audit fees

The tone of financial reporting, as one of the important aspects of quality information of financial reports is determined by the ratio of positive and negative words in the annual financial reports, which can be considered as influential factors for the auditor as a factor to assess the risk of the owner and affect the audit fee. According to theories of alignment and entrenchment, family ownership may reduce audit fees by reducing information asymmetry and agency costs, or by increasing audit fees through financial misuse and fraudulent financial reporting. Therefore, the aim of the present study is to investigate the relationship between the financial reporting optimistic tone and audit fees and to study the moderating effect of family ownership on this relationship with respect to theories of alignment and entrenchment. To achieve the purpose of this study, the financial information of 88 companies listed on the Tehran Stock Exchange in the period between 2012 and 2019 has been done. The results of statistical tests of the research show that the financial reporting optimistic tone leads to a reduction in audit fees. In addition, the results showed that, in accordance with the alignment theory, family ownership it moderates and intensifies the relationship between the financial reporting optimistic tone and audit fee.