Seminar (Dept. of Accounting)

Title：Opinion Shopping and Auditor Demand: A Novel Framework

Speaker: Aiyong Zhu, Professor, University of Southwestern University of Finance and Economics

Time：10:00-11:30, March 26, 2025 (Wednesday)

Venue：Room 1008, Mingde Business Building

Language：Chinese & English

ABSTRACT:

This study proposes a novel framework for empirically identifying opinion shopping. We modify the widely used Lennox (2000) model by incorporating a discrete choice approach. Our modification relaxes the assumption that all audit firms use the same audit technology, allows for a more nuanced consideration of client preferences, and enables policy evaluations. We apply this framework to the U.S. audit market in the post-SOX era and use going concern modifications as a proxy for unfavorable audit opinions. First, we find that clients exhibit preferences consistent with opinion shopping, favoring audit firms that are less likely to issue going concern modifications. However, clients also value audit firms with a reputation for being strict, suggesting a complex trade-off between leniency and credibility. Second, clients perceive a reputation for strictness as a positive attribute only for Big 4 auditors and industry specialists. Third, our analysis reveals that large clients are more likely to prioritize audit accuracy. Finally, we evaluate the effects of multiple-period contracts and mandatory rotation, highlighting their unintended consequences. While such policies have limited effects on opinion shopping, they impose significant economic costs, particularly by disrupting client-auditor matching efficiency.