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Opinion shopping: Partner versus firm-level evidence

Author

Listed:
  • Beatriz García Osma

    (Universidad Carlos III de Madrid)

  • Belén Gill de Albornoz Noguer

    (Universitat Jaume I)

  • Elena De las Heras Cristobal

    (Universidad Autónoma de Madrid)

Abstract

We study the strategies, timing and relative outcomes obtained by companies that attempt to shop for more favorable audit opinions both at the firm and at the partner level. Using a uniquely long time series of Spanish firms’ data, we employ the Lennox's (2000) methodology and find evidence of successful opinion-shopping through voluntary firm switching. In contrast, our results suggest that voluntary audit partner switches are associated with a fresh eye effect. Additionally, we document that firm switching activity is more likely when prior attempts to shop for an opinion were unsuccessful. Finally, we show that the fresh eyes effect associated with partner switching disappears when partner rotation becomes mandatory; and that under such a regulatory setting firm-level opinion-shopping is still pervasive. Estudiamos las estrategias empresariales para conseguir informes de auditoria con opiniones mas favorables, tanto a nivel de firma como de socio. Utilizando la metodología de Lennox (2000) y la comparación entre la opinión pre y post cambio de auditor, proporcionamos evidencia de la existencia de compra de opinión a través del cambio voluntario de firma de auditoría. Sin embargo, los resultados sugieren que los cambios voluntarios del socio de auditoría están asociados con un efecto "ojos frescos". Además, los cambios de firma son más probables cuando previamente se han producido intentos de compra de opinión que no han tenido éxito. Finalmente, se proporciona evidencia de que el efecto "ojos frescos" asociado a los cambios voluntarios de socio desaparece cuando la rotación del socio es obligatoria; y que la compra de opinión a nivel de firma sigue existiendo en un contexto de rotación obligatoria del socio.

Suggested Citation

  • Beatriz García Osma & Belén Gill de Albornoz Noguer & Elena De las Heras Cristobal, 2016. "Opinion shopping: Partner versus firm-level evidence," Working Papers. Serie EC 2016-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    • Handle: RePEc:ivi:wpasec:2016-02
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    References listed on IDEAS

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    More about this item

    Keywords

    compra de opinión; cambio de auditor; opinión con salvedades; rotación obligatoria del socio. opinion-shopping; auditor switches; modified audit reports; mandatory partner rotation.;
    All these keywords.

    JEL classification:

    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • M48 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Government Policy and Regulation

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