Is Audit Opinion Shopping Priced in the Debt Market?

15 Pages Posted: 10 Sep 2022

See all articles by Heesun Chung

Heesun Chung

Hanyang University

Jaehee Jo

Seoul National University

Catherine Heyjung Sonu

Korea National Open University - Department of Management

Abstract

We examine the relation between a firm’s opportunistic auditor switch for a favorable audit opinion, namely opinion shopping (OS) behavior, and the cost of debt. Using Korean listed firms for the period 2005-2020, we find that firms engaging in OS exhibit a higher cost of debt. This result remains robust to possible endogeneity concerns. We find that the negative consequences of OS in the debt market are more pronounced for firms with weaker governance and higher information asymmetry. Overall, our evidence suggests that OS is an important factor that debt market participants incorporate when assessing a firm’s credit risk.

Keywords: Cost of debt, credit risk, opinion shopping, external auditor, Corporate Governance

Suggested Citation

Chung, Heesun and Jo, Jaehee and Sonu, Catherine Heyjung, Is Audit Opinion Shopping Priced in the Debt Market?. Available at SSRN: https://ssrn.com/abstract=4215251

Heesun Chung

Hanyang University ( email )

Seoul
Korea, Republic of (South Korea)

Jaehee Jo

Seoul National University ( email )

Kwanak-gu
Seoul, 151-742
Korea, Republic of (South Korea)

Catherine Heyjung Sonu (Contact Author)

Korea National Open University - Department of Management ( email )

86 Daehakro Jongrogu
Seoul, 03087

HOME PAGE: http://professor.knou.ac.kr/hjsonu/index.do?epTicket=LOG

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