Abstract: Based on the two types of agency problems, this paper studies the issue of internal control in family-owned firms. The results show that family-owned firms exhibit higher quality of internal control among private enterprises. The quality of internal control will become higher when the position of CEO or the other positions are held by the family members. The results of further investigation suggest that the higher the degree of separation between ownership and controlling right, the lower the quality of internal control. When the family members hold the position of CEO or the other posts, the negative effect brought about by the separation between ownership and controlling right would become much worse. Moreover, if the position of CEO is held by non-family members, the quality of internal control is lower, but if it is held by family members, the quality of internal control will be improved. This research conclusion can contribute to the extension of the relative literatures on ownership structure and internal control.

Key words: family-owned firms; agency problem; internal control