Goodwill impairment, auditor dismissal and opinion shopping–evidence from China

Abstract

ABSTRACTUsing listed companies from 2010 to 2019 in China, we investigate whether firms engage in opinion shopping activities when firms dismiss the auditors following a goodwill impairment. We find that firms tend to dismiss the incumbent auditors after receiving a goodwill impairment opinion and engage in opinion shopping with their successor auditors. Furthermore, the successor’s auditor quality is similar to the predecessor’s audit quality following a dismissal. Moreover, firms with low-quality internal control system and low analyst coverage level are more motivated to engage in opinion shopping subsequently after receiving a goodwill impairment opinion. Our findings would be of interest to corporate governance activists, auditors, investors and regulators.

Keywords

• Goodwill impairment
• opinion shopping
• auditor dismissal
• agency cost