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Debt Constraints and Opinion Shopping

Fri, April 28, 3:55 to 5:35pm, Hilton Miami Downtown, TBA

Abstract

This paper examines whether U.S. companies are more likely to engage in going concern opinion shopping when they are financially constrained. Using text-based measures to identify companies that wish to issue debt or equity but finding it difficult to do so, we show that many U.S. companies engage in going concern opinion shopping. Importantly, unlike equity-constrained companies, we find that opinion shopping is far less common among the companies that are debt-constrained. Further, we show that the market penalizes debt-constrained companies that change auditors to shop for more favorable audit opinions. These companies experience significantly larger negative abnormal returns on the date that the auditor change is announced and the CEOs of these companies are more likely to be dismissed. Overall, we contribute to the literature by providing evidence on the incentives and economic consequences of companies engaging in going concern opinion shopping.

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