Assessing the Impact of Analyst Coverage and Political Connections on Audit Opinion Shopping in China's Corporate Sector

This study builds on the framework established by Lennox (2002) to assess the likelihood of firms receiving modified audit opinions (MAOs) and explores the relationship between analyst coverage and audit opinion shopping among Chinese-listed firms, with a particular focus on the moderating effects of political connections and political leadership turnover. Leveraging a comprehensive dataset of 37,774 observations from 2004 to 2022, our findings indicate that analyst coverage significantly increases the propensity for audit opinion shopping, especially in firms with strong political ties. Additionally, we conduct an event study to examine the impact of analyst announcements within China’s A-share market. By analyzing reports from top-ranked analysts identified through the "New Fortune Best Analyst" rankings, we observe significant market reactions, suggesting that influential analyst coverage heightens the pressure on firms to secure favorable audit outcomes, particularly during critical financial periods. Furthermore, our analysis of political leadership turnover during the 17th, 18th, and 19th National Congresses reveals that changes in local political leadership, particularly the promotion of local officials, further amplify firms’ tendency to engage in audit opinion shopping. These findings underscore the intricate interplay between market scrutiny, political dynamics, and corporate audit practices, providing new insights into the factors that drive audit opinion shopping in China’s distinctive corporate landscape.