Silencing the alarm: continuous innovation failure and going-concern opinion shopping

Xintao Wang, Lingyu Tian and Mei Zhao

Managerial Auditing Journal, 2026, vol. 41, issue 7, 1309-1334

Abstract: PurposeThis study aims to investigate whether distressed firms with continuous innovation failure affect their likelihood of engaging in going-concern opinion shopping.Design/methodology/approachUsing data on distressed A-share listed companies in China from 2012 to 2023, an OLS model to test the research question is designed. Robustness tests are conducted to rule out alternative explanations and additional tests to shed light on the extent and inner workings of the main effect.FindingsThe firms experiencing continuous innovation failure are more likely to engage in going-concern opinion shopping. Mechanism tests identify two explanatory channels: continuous innovation failure strengthens managerial risk-taking incentives, leading firms to avoid financing disruptions by avoiding going-concern opinions, and increases earnings management, which raises audit risks and motivates firms to compromise auditor independence through opinion shopping. Cross-sectional analyses further show that the effect is stronger when firms receive fewer innovation subsidies, when auditors are more economically dependent on the client and when firms exhibit lower default risk. Moreover, firms with continuous innovation failure prefer switching auditors over retaining incumbents to facilitate opinion shopping. Specifically, they are more inclined to engage non-Big 10 accounting firms and pay higher audit fees. Finally, we document that these firms increase research and development investments and generate significantly more invention patents in the following year, suggesting that managers attempt to overcome financial distress through intensified innovation.Originality/valueBy linking continuous innovation failure to audit opinion shopping, this study uncovers a previously overlooked determinant of going-concern reporting decisions and provides new empirical insights into the audit strategies of financially constrained firms.

Keywords: Innovation failure; Going-concern opinion shopping; Auditor switches (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:eme:majpps:maj-11-2025-5074

DOI: 10.1108/MAJ-11-2025-5074

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