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

Download or read book Do Audit Clients Successfully Engage in Opinion Shopping? Partner-Level Evidence written by Feng Chen and published by . This book was released on 2015 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.