CSR Performance in Family Firms: The Pivotal Role of the External Auditor and the Moderating Impact of Family Influence and Eponymy

Abstract

The debate surrounding the corporate social responsibility (CSR) performance of family firms remains inconclusive. In order to unravel the dynamics that lead to better CSR performance of family firms, accounting for their heterogeneity is essential. While valuable steps in this regard have already been taken, we posit that a central figure is generally overlooked in prior studies, namely the external auditor. Specifically, we argue that the extent of investment made by family firms in their external audit, reflected in the level of audit fees, directly impacts their CSR performance as presented in CSR reports. We contend that this investment enhances the quality of these reports, facilitating a more effective communication of CSR efforts to stakeholders. However, drawing from the willingness-ability paradox, family firm characteristics may modulate the willingness of these firms to leverage this potential. Using a comprehensive sample of publicly listed family firms in the United States, our findings reveal a strong and positive association between the level of audit fees and CSR performance. Notably, this relationship becomes weaker as the degree of family influence within the firm increases but stronger when the company name bears the family's name. These findings shed light on the intricate interplay between external audits, family firm dynamics, and CSR performance, offering valuable insights for academics, practitioners, and policymakers seeking to better understand and promote CSR initiatives in family businesses.