Do Audit Clients Successfully Engage in Opinion Shopping? Partner-Level Evidence

50 Pages Posted: 28 Aug 2015 Last revised: 3 Oct 2015

See all articles by Feng Chen

Feng Chen

University of Toronto - Rotman School of Management

Songlan (Stella) Peng

York University

Shuang Xue

Shanghai University of Finance and Economics

Zhifeng Yang

Stony Brook University

Feiteng Ye

Shanghai Lixin University of Commerce

Multiple version iconThere are 2 versions of this paper

Date Written: August 26, 2015

Abstract

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.

Keywords: Opinion Shopping; Partner Switch; Audit Quality; Individual Auditor

JEL Classification: M40, M41, M42

Suggested Citation

Chen, Feng and Peng, Songlan and Xue, Shuang and Yang, Zhifeng and Ye, Feiteng, Do Audit Clients Successfully Engage in Opinion Shopping? Partner-Level Evidence (August 26, 2015). Journal of Accounting Research, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2652049 or http://dx.doi.org/10.2139/ssrn.2652049

Feng Chen

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Songlan Peng

York University ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Shuang Xue

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, AK Shanghai 200433
China

Zhifeng Yang (Contact Author)

Stony Brook University ( email )

Health Science Center
Level 3, Room 043
Stony Brook, NY 11794-8322
United States

Feiteng Ye

Shanghai Lixin University of Commerce ( email )

2800 Wenxiang Road
Shanghai, Shanghai
China

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