Shop 'til you...receive a clean audit opinion: a quantitative study on whether Swedish private firms successfully engage in opinion shopping

Abstract: This study examines whether Swedish private firms successfully engage in opinion shopping. Further, the study expands on previous studies on opinion shopping by investigating the reasons behind audit firm switches. We test this by employing the well-used Lennox methodology on 14 years' Swedish data where we predict the audit opinion a company would have received if it would have made the opposite switch decision. We find that companies would have received modified audit opinions more often if they would have made a different switch decision, and hence that Swedish private firms successfully engage in opinion shopping. We also find that when reasons for switching audit firms are remarkable, opinion shopping is more prominent than when the reasons for switching audit firms are natural. Additionally, when the reason is missing, opinion shopping is more prominent both when the reason is natural and when it is remarkable. As opinion shopping creates uncertainties regarding the credibility of the financial statements, these findings could have implications for regulators who want to increase the credibility through increased scrutiny, monitoring, and investigations. It could also have implications for other stakeholders such as lenders who grant loans based on companies' financial position.