The Extent of Digital Transformation, Dual Agency Problems, and the Choice of Industry Specialist Audits in Family Businesses: Evidence from China

Existing research often regards a family business’s choice of auditor as a simple and isolated decision. In contrast, this paper presents a complex adaptive system in a broader definition of family businesses, and shows audit supervision emerging dynamically from the interplay of digital transformation, governance, and family generational succession. This paper finds that a larger extent of digital transformation makes family businesses more likely to adopt industry specialist audits. This relationship happens through agency problems within the system. Crucially, the involvement of a digitally literate second generation rebalances these forces by alleviating agency issues, thereby strengthening the push toward industry specialist audits. Our study provides a perspective, revealing that audit governance is not a discrete choice but a system-level outcome of internal tensions and adaptations. This framework offers clear guidance: (1) for family owners, fostering digital literacy in the next generation is key to improving governance during technological change; (2) for auditors, it highlights the evolving risk and demand landscape in digitalizing family firms; (3) for policymakers, it encourages the importance of initiatives that support both digital transformation and governance development in family businesses.