Do Audit Clients Successfully Engage in Opinion Shopping? Partner-Level Evidence
This study investigates whether companies engage in audit opinion shopping activities by exerting influence over an audit firm's decision to switch the engagement partner ("partner-level opinion shopping") in the Chinese setting, where the identities of engagement partners are publicl...
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| Published in: | Journal of accounting research Vol. 54; no. 1; pp. 79 - 112 |
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| Main Authors: | , , , , |
| Format: | Journal Article |
| Language: | English |
| Published: |
Chicago
Blackwell Publishing Ltd
01-03-2016
Wiley Subscription Services, Inc |
| Subjects: | |
| Online Access: | Get full text |
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| Summary: | This study investigates whether companies engage in audit opinion shopping activities by exerting influence over an audit firm's decision to switch the engagement partner ("partner-level opinion shopping") in the Chinese setting, where the identities of engagement partners are publicly disclosed. Adopting the empirical framework developed by Lennox [2000], we show evidence that companies successfully engage in partner-level opinion shopping. Further, partner-level opinion shopping is more likely to be successful if a company is economically important to an audit firm, and it is less likely to be successful if the audit firm is formed as a partnership rather than a corporation. We also find that companies successfully engaging in partner-level opinion shopping exhibit significantly lower earnings quality. Finally, we directly compare audit records between incoming and outgoing partners and find that, for companies that successfully improve audit opinions after partner switching, incoming partners have a significantly higher propensity to issue clean opinions than their outgoing counterparts. |
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| Bibliography: | Humanities and Social Science Foundation of the Ministry of Education of China - No. 13YJC790183 istex:12E8442202FBA6BFDB10071188297EC3755068C0 ArticleID:JOAR12097 Research Grants Council of the Hong Kong Special Administration Region, China - No. 196413 National Science Foundation of China - No. 71502107 National Science Foundation of China - No. 71172143, 71572102 ark:/67375/WNG-7S9RKQ7B-L Accepted by Philip Berger. We appreciate the helpful comments and suggestions from an anonymous referee, Sudipta Basu, Jian Cao, Chih‐Ying Chen, Donghua Chen, Yingwen Guo, Carl Hollingsworth, Mingyi Hung, Qiliang Liu, Wally Smieliauskas, Minlei Ye, Ping Zhang, and the participants of the 2014 AAA Auditing Section midyear meeting, the 2014 AAA International Section midyear meeting, the 2014 AAA annual meeting, the 2014 CAAA annual meeting, the 2014 JCAE annual symposium, the 4th (2014) joint symposium of City University of Hong Kong, National Taiwan University, and Shanghai University of Finance and Economics, and the workshops at Huazhong University of Science and Technology, Nanjing University, McGill University, and Sun Yat‐Sen University. Feng Chen acknowledges financial support from the Social Sciences and Humanities Research Council of Canada. Shuang Xue acknowledges financial support from the National Science Foundation of China (Project No. 71172143 and Project No. 71572102). Zhifeng Yang acknowledges a research grant from the Research Grants Council of the Hong Kong Special Administration Region, China (Project No. 196413). Feiteng Ye acknowledges financial support from the National Science Foundation of China (Project No. 71502107) and the Humanities and Social Science Foundation of the Ministry of Education of China (Project No. 13YJC790183). ObjectType-Article-1 SourceType-Scholarly Journals-1 ObjectType-Feature-2 content type line 23 |
| ISSN: | 0021-8456 1475-679X |
| DOI: | 10.1111/1475-679X.12097 |