Opinion-Shopping: Firm versus Partner-Level Evidence

Abstract

Employing Lennox’s (2000) methodology on a uniquely long time series of Spanish companies’ data, we find evidence of successful audit opinion-shopping through the firm switching decision. However, in contrast to Chen et al. (2016) in the Chinese setting, we find no evidence of successful opinion-shopping at the partner level. This supports the thesis that the audit market characteristics that are key to promote or deter opinion shopping might differ at the firm and partner level within a country, with consequences for audit quality. In addition, we provide evidence on the strategies that companies use to secure more favourable opinions. The results suggest that companies prefer to opinion shop at the partner level, which is consistent with the argument that the costs and benefits associated with opinion-shopping are different at these two levels, and lead to different outcomes.

Keywords: audit opinion-shopping; audit firm switches; audit partner switches; modified audit opinion

JEL Classification: M42, M48