Fair Value Opinion Shopping

BEHAVIORAL RESEARCH IN ACCOUNTING American Accounting Association
Vol. 28, No. 1 DOI: 10.2308/bria-51238

Spring 2016
pp. 57–66
Fair Value Opinion Shopping

Leigh Salzsieder
University of Missouri–Kansas City
ABSTRACT: This study reports the results of an experiment designed to provide empirical evidence related to fair
value opinion shopping. The experiment provides initial evidence that managers are likely to shop for fair value
opinions from external valuation professionals in the absence of a requirement to disclose that behavior to the board
or auditor. Disclosure becomes a meaningful deterrent when the beneficiary of opinion shopping is perceived to be
the manager. However, disclosure is an ineffective deterrent when the beneficiary is perceived to be shareholders.
Keywords: fair value measurement; opinion shopping; deterrence.
INTRODUCTION
W
ith the recent surge in fair value measurement, accounting researchers and standard setters have called for increased
reliance on valuation professionals (Public Company Accounting Oversight Board [PCAOB] 2005, 2008; Martin,
Rich, and Wilks 2006 ), as external valuation professionals are expected to increase the accuracy and reliability of
fair value measurements (Barth and Clinch 1998; Dietrich, Harris, and Muller 2001; Cotter and Richardson 2002; Muller and
Riedl 2002; Landsman 2007 ). Accordingly, auditors are also more likely to accept fair value opinions from external valuation
professionals than company insiders (Mautz and Sharaf 1961; Hirst 1994a; American Institute of Certified Public Accountants
[AICPA] 1996; Reimers and Fennema 1999). Practitioners, however, have expressed fear that this increased reliance on
external valuation professionals could have the unintended consequence of motivating a new form of opinion shopping—fair
value opinion shopping (Doshi and Patel 2008; Frith 2001; Leone 2008; Hunt 2011). I define fair value opinion shopping as the
practice of seeking a valuation opinion to support any primary objective other than faithfully representing the asset (or liability)
being valued.1 This paper investigates: (1) whether fair value opinion shopping is likely to occur, and (2) whether controls used
to combat opinion shopping in other domains are likely to deter fair value opinion shopping.
Understanding whether fair value opinion shopping occurs and how to prevent it from occurring is important for several
reasons. First, fair value already has many applications in accounting (e.g., tax, statutory, and financial accounting) and is
quickly becoming the dominant measurement attribute for external financial reporting. Since 2006, approximately 90 percent of
the Financial Accounting Standards Board (FASB) pronouncements issued have involved fair value measurement (FASB
2013). At the same time, International Financial Reporting Standards (IFRS), already allow for the broader use of fair value.
Second, standard setters and practitioners acknowledge that as the number and complexity of items measured at fair value
in the financial statements continues to increase, so will the reliance on the work of valuation professionals (PCAOB 2008;
Bratten, Gaynor, McDaniel, Montague, and Sierra 2013). Specifically, auditors will place increased reliance on valuation
professionals to gain assurance on fair value measurements (AICPA 1996; Martin et al. 2006 ). In response, the PCAOB has
called for an analysis of the relationship between auditors and valuation professionals (specialists) ‘‘since specialists often play
a critical role in determining and assessing fair value estimates’’ (PCAOB 2005, 5). In fact, the chairman of the PCAOB
indicated that ‘‘auditor ignorance of valuation techniques used by companies making fair value calculations is a top concern for
I thank Richard C. Hatfield (editor) and two anonymous referees for their valuable comments and suggestions. I thank my dissertation chair, Scott Jackson,
for his support and guidance throughout this project, as well as my other committee members, Tim Doupnik, Eric Powers, and Brad Tuttle. I also thank
Wendy Bailey, Victoria Glackin, Erin Hamilton, Hyun S. Jin, Gabrielle Koebler Clark, Tom Lopez, Linda Quick, Tammie Schaefer, Michael Roberts,
Jane Thayer, Yu Tian, Scott Vandervelde, Lei Wang, and Jennifer Winchel for their helpful insights. This paper has also benefited from comments
provided by workshop participants at the University of Colorado Denver, The University of New Mexico, and the University of South Carolina.
Editor’s note: Accepted by Richard C. Hatfield.
Submitted: July 2014
Accepted: July 2015
Published Online: July 2015
1
This does not necessarily imply that the opinion does not faithfully represent the asset/liability being valued because fair value is often represented as a
range of potential values; however, it does imply a particular value is being sought to achieve another purpose.
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58 Value Opinion Shopping Salzsieder
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the PCAOB’’ (Johnson 2007, 1).2 Thus, as fair value becomes the dominant measurement attribute for financial reporting and
reliance on external valuation professionals increases, so does the opportunity to fair value opinion shop.
Third, while researchers, practitioners, and standard setters have devoted significant time and effort to investigating
opinion shopping in areas such as investment banking (Giuffra 1986 ), credit rating (Coffee 2005; Securities and Exchange
Commission [SEC] 2009a), law (Lowenfels 1971; Bureau of National Affairs [BNA] 1971; Kraakman 1986; SEC 2004 ), and
auditing (SEC 1971, 1985, 1988; Mangold 1988; Lennox 2000), empirical work regarding opinion shopping in those domains
remains inconclusive. Still, anecdotal evidence continually prompts standard setters to enact governance mechanisms to deter
opinion shopping in those domains (Treadway 1984; Commerce Clearing House [CCH] 1984, 1985; Powers 1985; SEC 1988,
2009a). Understanding whether such deterrence mechanisms would be effective in a fair value setting is also important.3
Highly experienced managers participate in an experiment to investigate whether fair value opinion shopping is likely to
occur and whether disclosure to boards and/or auditors serves as a mechanism to deter managers from fair value opinion
shopping. The results reveal, consistent with anecdotal evidence and regulators’ concerns, that managers are likely to engage in
fair value opinion shopping for personal and shareholder benefits in the absence of mitigating controls. In addition, consistent
with predictions of deterrence theory (which suggests individuals can be deterred from performing a questionable act by
increasing the likelihood and magnitude of punishment), results suggest that participants’ opinion shopping decisions stem, in
part, from their perceptions of the likelihood and magnitude of sanctions from boards and auditors. More specifically, when
managers are shopping for shareholder benefits, disclosure to boards and auditors does not serve as a meaningful deterrent. At
the same time, when shopping for personal benefits, disclosure to the board and/or auditor serves as a deterrent.
The paper proceeds as follows. The next section provides background and develops the hypotheses. This is followed by a
discussion of the methodology, as well as tests of the hypotheses. Finally, conclusions and limitations are presented.
BACKGROUND AND HYPOTHESES

Fair Value Opinion Shopping in the Absence of Disclosure to Boards and Auditors
An extensive body of literature suggests that earnings are managed to obtain both personal benefits (Healy 1985; J. Gaver
and K. Gaver 1998; Guidry, Leone, and Rock 1999; Matsunaga and Park 2001) and shareholder benefits (Subramanyam 1996;
Bartov, Givoly, and Hayn 2002; Bowen, Rajgopal, and Venkatachalam 2008; Gunny 2010). The literature also suggests that
firms manage both accruals (Subramanyam 1996; Burgstahler and Eames 2003; Jackson and Liu 2010) and real activities
(Baber, Fairfield, and Haggard 1991; Bartov 1993; Graham, Harvey, and Rajgopal 2005; Roychowdhury 2006; Gunny 2010)
to meet financial targets. Together, this research supports the contention that earnings are managed for many reasons and in
many ways (Healy and Wahlen 1999; Fields, Lys, and Vincent 2001; Graham et al. 2005). If managers view fair value opinion
shopping as a means to achieve their financial targets, then managers may fair value opinion shop. At the same time, managers
have a duty to faithfully represent their firm’s financial information. If managers shop for an opinion that is not a faithful
representation, then managers are misrepresenting financial information. Karpoff, Lee, and Martin (2008) demonstrate that
financial misrepresentation by managers frequently causes them to face severe consequences, including monetary losses, legal
penalties, and termination.
Currently there is no empirical research examining whether managers misrepresent financial information through fair value
opinion shopping; yet, there are at least three reasons to expect that they will engage in this behavior. First, in the current
regulatory environment, fair value opinion shopping is likely to survive auditor scrutiny because firm managers are not required
to disclose instances in which multiple opinions were obtained. Instead, managers may provide the auditor with the single fair
value opinion that supports their assertion of value. Second, many fair value measurements are highly subjective, and
associated with extreme estimation uncertainty, which increases the opportunity for earnings management (Nelson, Elliott, and
Tarpley 2002; McVay 2006; Christensen et al. 2012). Third, it is frequently alleged that managers opinion shop in other
domains (e.g., credit rating, investment banking, law).4 Taken as a whole, managers’ demonstrated tendency to manage
earnings to achieve financial targets for both shareholder and personal benefits, the extreme estimation uncertainty surrounding
fair value measurements, the breadth of allegations of opinion shopping in other domains, and the absence of mechanisms to
2
Christensen, Glover, and Wood (2012) also highlight the difficulty of auditing fair values, but they argue that extreme estimation uncertainty instead of
ignorance is to blame.
3
The SEC implicitly relied on deterrence theory to combat both audit and credit rating opinion shopping (SEC 1988, 2009b) and deter other behavior in
Sarbanes-Oxley (Ugrin and Odom 2010). Further, Cohen, Dey, and Lys (2008) and Gunny (2010) show that managers’ responses to such deterrent
mechanisms (switching to earnings management strategies with a lower likelihood of sanctions) is consistent with the calculus of deterrence theory.
Behavioral Research in Accounting Behavioral Research in Accounting

Volume 28, Number 1, 2016 Volume 28, Number 1, 2016
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4
While fair value opinion shopping and audit opinion shopping are similar in some respects, these two forms of opinion shopping differ on several
important dimensions including the number of opinions issued, the scope of the work performed, and relatively low barriers to entry as a valuation
professional.

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deter fair value opinion shopping suggest that managers will fair value opinion shop. Hypotheses 1a and 1b, stated in
alternative form, are as follows:
H1a: Managers will fair value opinion shop for a second opinion when the first opinion causes investors harm.
H1b: Managers will fair value opinion shop for a second opinion when the first opinion causes them harm.
Deterring Fair Value Opinion Shopping

Deterrence theory suggests that individuals choose to perform a questionable act when the benefits outweigh the costs
(Akers 2000). The theory centers on the idea that individuals can be deterred from performing questionable acts by increasing
the likelihood and/or magnitude of sanctions (i.e., costs) associated with the act to the point where the costs outweigh the
benefits. In the case of fair value opinion shopping, deterrence theory suggests that governance mechanisms will deter shopping
when those mechanisms cause managers to perceive that the costs of fair value opinion shopping outweigh the benefits.
Two governance mechanisms may be particularly effective in deterring fair value opinion shopping: (1) disclosure to
boards and (2) disclosure to auditors. The boards’ duties include (1) selecting, compensating, and, where necessary,
disciplining and replacing senior executives; and (2) reviewing the firm’s financial objectives and its accounting (American
Law Institute 1993; Fama and Jensen 1983; Anderson, Mansi, and Reeb 2004 ). At the same time, auditors function as the
primary assurance provider in the financial reporting process. Research on boards (Beasley 1996; Dechow, Sloan, and Sweeney
1996; Klein 2002; Anderson et al. 2004 ) and auditors (DeAngelo 1981; Hirst 1994b; DeFond and Subramanyam 1998) suggest
that these governance mechanisms deter earnings management, and therefore improve earnings quality. Further, research
suggests that investors view fair value information as more relevant and reliable in the presence of these governance
mechanisms (Bhat 2009; Goh, Ng, and Yong 2009; Song, Thomas, and Yi 2010).
Both boards and auditors can impose significant sanctions on managers for fair value opinion shopping. For example,
board-imposed sanctions could include unwinding the opinion shopping, or more punitive measures such as the loss of
promotions, the loss of incentive compensation, and even termination. The auditor could unwind opinion shopping, and would
likely question the validity of other management representations and revisit the audit plan to address the heightened risk of
misrepresentation, or in extreme cases, modify the audit opinion.
Each of these sanctions can also result in significant social and wealth-related costs for managers. Deterrence theory
strongly supports the notion that individuals, especially those with significant social and economic status at risk (e.g.,
managers), carefully consider potential social costs when deciding whether to undertake a questionable action (Tittle 1977;
Bishop 1984; Williams and Hawkins 1989; Paternoster and Simpson 1996; Pratt, Cullen, Blevins, Daigle, and Madensen 2006;
Strelan and Boeckmann 2006 ). This is consistent with extant accounting literature, which suggests that social concerns exert
significant influence over managers’ financial reporting decisions (Graham et al. 2005; Francis, Huang, Rajgopal, and Zang
2010). Thus, it is likely that managers contemplating the potential costs of fair value opinion shopping will consider the social
ramifications of their decision.
The deterrent effect of required disclosure to boards and auditors not only depends on managers’ perceptions of the
magnitude of sanctions, but also managers’ perceptions of the likelihood that boards and auditors will impose those sanctions. I
expect that managers’ perceptions of the likelihood of sanctions will depend on the beneficiary of shopping. Both boards and
auditors work to reduce agency costs, but boards are charged with maximizing shareholder wealth (Friedman 1970; Treynor
1981; Copeland and Weston 1988), whereas auditors are charged with enforcing GAAP ( Wallace 1980). Therefore, when
managers fair value opinion shop for shareholder benefits, their interests are aligned with the board, but not the auditor. This
should cause managers to perceive that boards are less likely than auditors to impose sanctions on them for shopping for
shareholder benefits. More specifically, I predict that requiring managers to disclose and explain to the auditor (board of
directors) their decision to seek a second fair value opinion primarily for shareholder benefits will (will not) deter fair value
opinion shopping. Hypothesis 2, stated in alternative form, is as follows:
H2: When managers are primarily motivated to obtain shareholder benefits, requiring them to disclose to the auditor
(board of directors) all instances where multiple fair value opinions are obtained will (will not) deter fair value
opinion shopping.
At the same time, when managers fair value opinion shop for personal benefits, their interests do not align with the board
or auditor. As a result, managers will likely perceive that both boards and auditors will impose sanctions for fair value opinion
shopping to obtain personal benefits. Consequently, I predict that a requirement for managers to disclose to the auditor and/or

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board of directors the decision to seek a second opinion primarily for personal benefits will deter fair value opinion shopping.
Hypothesis 3, stated in alternative form, is as follows:

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H3: When managers are primarily motivated to obtain personal benefits, requiring them to disclose and explain to either
the auditor and/or the board of directors all instances where multiple fair value opinions are obtained will deter fair
value opinion shopping.
EXPERIMENT AND RESULTS

Experiment
The purpose of the experiment is to (1) test whether managers are likely to fair value opinion shop in the absence of
required disclosure, and (2) test the effect of a requirement to disclose all fair value opinions obtained to either the board or the
external auditor (or both) on managers’ opinion shopping decisions. The experiment consists of a 2 (beneficiary of fair value
opinion shopping: personal, shareholder) 3 2 (board disclosure requirement: present, absent) 3 2 (auditor disclosure
requirement: present, absent) full-factorial between-participants design.5 The dependent variable is participants’ judged
likelihood of seeking a second fair value opinion measured on a ten-point scale ranging from 1 (‘‘Not at all likely’’ to seek a
second fair value opinion) to 10 (‘‘Extremely likely’’ to seek a second fair value opinion).
Participants
Participants consist of 313 alumni of a public university who were recruited through the alumni relations department of the
business school.6 The mean (median) age of the participants is 42.64 (40.50) years and the mean (median) number of years of
professional work experience is 17.61 (15.50), both suggesting participants are well suited for the experiment.
Procedure and Instrument

Fair value opinion shopping can occur at three different points within the financial reporting process. First, prior to hiring a
valuation professional, managers could shop for a compliant professional. Second, after hiring a valuation professional,
managers could threaten to fire that professional unless s/he is compliant. Third, managers could seek a second opinion after the
first opinion fails to produce a desired outcome. This experiment examines situation where a manager has already obtained an
opinion that fails to produce a desired outcome, but has learned that if s/he gets a second opinion, then it will produce the
desired outcome.
The task materials describe a situation involving Peyton Wilson, a member of top management in a hypothetical company,
CGC Corporation. Participants learn that Peyton just received a fair value estimate from an external valuation professional and,
after factoring the fair value estimate into the preliminary financial statements, CGC will miss a financial target. The first
manipulated variable, Beneficiary, indicates to participants who would primarily benefit from fair value opinion shopping:
Peyton ( personal benefit) or CGC shareholders (shareholder benefit). In the personal benefit condition, participants learn that
‘‘while missing the financial target has no direct impact on shareholders, Peyton cannot obtain certain benefits if CGC misses
the target.’’ Next, participants find that ‘‘Peyton must now choose whether to seek a different fair value opinion,’’ and if Peyton
did seek a different fair value opinion, then CGC would meet its financial target and Peyton would obtain certain benefits. This
is a key study design feature because by telling participants that they have received an opinion that fails to meet a target, but if
they get a second opinion they will meet that target, then this ensures that participants are buying a predetermined outcome
(e.g., opinion shopping).7 The shareholder benefit condition is identical except for stating that the benefits would be obtained by
shareholders, not Peyton.8
Recall that deterrence theory predicts that participants’ decisions regarding fair value opinion shopping depend on their
perceptions of the likelihood and magnitude of sanctions that may be imposed on them for shopping. The second and third
independent variables manipulated the presence versus absence of required disclosure to the auditor and/or board. Participants
5
Subsequent to data collection for this experiment in 2010, the PCAOB (in 2012) began to require the auditor to communicate to the audit committee
matters related to critical accounting estimates, which may include fair value measurements. Thus, if the auditor knows that a manager opinion
shopped, then the board may also know.
6
The alumni relations director sent an email invitation, including a link to the web-based instrument, to 3,526 M.B.A. alumni who had graduated a
minimum of five years prior to administration of the experiment. A total of 313 individuals completed the study, which represents an 8.88 percent
response rate.
7
The experiment did not ask participants if they believed the second opinion was inaccurate. Thus, it is impossible to know for certain whether
participants thought they were purchasing an invalid opinion.

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8
The decision was made to use abstractions of beneficiary (i.e., not name one specific benefit) because these abstractions of beneficiary allow for a large
number of pecuniary and nonpecuniary benefits. It is important to recognize that ‘‘no direct impact’’ does not mean ‘‘no impact,’’ and thus the
instrument allows that shareholders (Peyton) will obtain indirect benefits. The important part of this manipulation is that the primary beneficiary is the
shareholder (Peyton), which theory suggests should have implications for board/auditor deterrence.

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in conditions where auditor disclosure was required were told that Peyton will be required to disclose and justify all fair value
opinions obtained to the auditor. Similar language was used to manipulate a disclosure requirement to the board. After
responding to the dependent measure, participants answered demographic and other explanatory questions.
Results
Participants responded to three questions to assess whether they correctly interpreted the task and manipulations. A total of
89 percent correctly identified the beneficiary of opinion shopping, while 92 percent and 91 percent correctly answered whether
board and auditor disclosure was required, respectively.9 I eliminate responses of participants who incorrectly responded from
further analyses, resulting in 239 usable responses.10
Table 1, Panel A details participants’ self-reported job titles demonstrating a high level of experience. Panel B of Table 1
provides means and standard deviations of participants’ likelihood of fair value opinion shopping in each of the conditions.11
H1a (H1b) predict that managers will fair value opinion shop for shareholder ( personal) benefits. To formally test H1a (H1b), I
compare condition means absent a disclosure requirement. This analysis, presented in Panel A of Table 2, demonstrates that
means in both the shareholder (7.70) and personal (8.23) conditions are statistically higher than the midpoint of 5.50 ( p-values
, 0.01), suggesting that participants chose to fair value opinion shop in both conditions. Thus, H1a and H1b are supported.12
H2 predicts that when managers are shopping for shareholder benefits, their interests are aligned with the board, and thus,
disclosure to the board will not deter opinion shopping. It also predicts that as auditors and managers have no such alignment, a
requirement to disclose to the auditor when multiple fair value opinions are obtained will deter opinion shopping. Untabulated
results fail to support H2. Consistent with predictions, analysis of main effects demonstrate that required disclosure to the board
does not alter managers’ likelihood of opinion shopping (t-statistic ¼ 0.45, p-value ¼ 0.31); however, contrary to predictions,
auditor disclosure fails to deter opinion shopping (t-statistic ¼ 0.11, p-value ¼ 0.46 ).13,14
H3 predicts that when managers shop for personal benefits, a requirement to disclose and explain to the auditor, the board,
or both when multiple fair value opinions are obtained will deter opinion shopping. That is, the condition without disclosure
will be higher than the other three conditions where disclosure is present. Because H3 specifies a particular pattern of results, I
test this hypothesis using contrast coding (Buckless and Ravenscroft 1990; Rosenthal and Rosnow 2008). Consistent with the
theory that required disclosure will reduce the likelihood of shopping, I use contrast weights of þ3 for the condition without
disclosure to the board or auditor, and 1 for the other three conditions.
Results presented in Panels B and C of Table 2 indicate the hypothesized contrast is statistically significant (t-statistic ¼
3.01, p-value , 0.01), as are the simple main effects of board and auditor disclosure ( p-values , 0.05). Thus, disclosure to the
board and/or auditor appear to deter managers from fair value opinion shopping for personal benefits, supporting H3.
CONCLUSIONS AND LIMITATIONS
The increasing use of fair values in financial reporting has led practitioners and standard setters to call for greater reliance
on external valuation professionals (PCAOB 2005; Martin et al. 2006 ). However, this increased reliance on external valuation
professionals could have the unintended consequence of motivating fair value opinion shopping. While it is widely believed
that opinion shopping frustrates the efficient functioning of capital markets, standard setters have historically taken a reactive
approach when attempting to mitigate it (Treadway 1984; CCH 1984, 1985; Powers 1985; SEC 1988, 2009a). Given the
potential opportunity for and impact of fair value opinion shopping, it is important to understand potential costs and benefits of
9
Consistent with prior literature (e.g., Ng and Tan 2003; Jamal, Marshall, and Tan 2011), these questions are used to screen out managers who may not
have carefully read the contents of the Internet-administered instrument. The 74 failures (313 239) occur evenly across the eight conditions.
Including these responses in the analyses does not alter the inferences and conclusions of this experiment.
10
Untabulated results of a partial replication and extension (moving manipulation checks to the end of the instrument) suggest that the location of
manipulation checks did not bias the results.
11
Tests show adequate randomization of participants in all of the experiments presented in the paper as none of the demographic variables differ
significantly between experimental conditions ( p-values . 0.10).
12
Tests of median differences yield similar results. All directional tests in this paper are one-tailed.
13
The interaction of board and auditor is also insignificant (t ¼ 0.00, p-value . 0.25).
14
I also examine participants’ responses to perceptual deterrence measures validated in the criminology literature. Untabulated results suggest that
managers’ perceptions of the likelihood of board sanctions when shopping for shareholder benefits is significantly lower than board sanctions for
personal benefits or auditor sanctions for personal or shareholder benefits ( p-values , 0.01). This suggests that managers perceive the board to be
unlikely to punish them for maximizing shareholder wealth. In fact, participants’ responses to follow up questions show that they believed the board

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would want them to seek a second opinion for shareholder benefits, but not for personal benefits. At the same time, participants felt that the magnitude
of punishment the board could impose is significantly greater than the punishment an auditor could impose (t-statistic ¼ 8.28, p-value , 0.01). Thus,
the lack of auditor deterrence may be due to managers’ perceptions of the magnitude of sanctions the auditor can impose.

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TABLE 1
Descriptive Statistics Experiment
Panel A: Participant Job Titles
Job Title Number Percent
Senior Manager/Manager 73 30.5%
Managing Director/Director 43 18.0%
Senior VP/VP 34 14.2%
CEO/President/Owner 32 13.4%
CFO/COO/Controller 20 8.4%
Partner/Executive 10 4.2%
Other 27 11.3%
239 100.0%
Panel B: Manager’s Fair Value Opinion Shopping Decisions

PERSONAL SHAREHOLDER
AUDITOR DISCLOSURE AUDITOR DISCLOSURE
BOARD DISCLOSURE Yes No Average Yes No Average
Yes Mean 5.84 6.72 6.30 7.37 7.41 7.38

Std. Dev. 2.76 2.41 2.60 2.53 2.53 2.57
n 32 36 68 38 27 65
No Mean 7.15 8.23 7.63 7.63 7.70 7.67
Std. Dev. 2.13 2.25 2.22 2.44 2.07 2.23
n 27 22 49 27 30 57
Average Mean 6.44 7.29 6.86 7.48 7.56 7.51
Std. Dev. 2.55 2.44 2.53 2.54 2.28 2.41
n 59 58 117 65 57 122
The dependent variable (manager’s fair value opinion shopping decision) represents manager’s response to a ten-point scale ranging from 1 (not at all
likely to seek a second fair value opinion) to 10 (extremely likely to seek a second fair value opinion).
All independent variables were manipulated between subjects.
Variable Definitions:
BOARD DISCLOSURE ¼ presence or absence of a requirement to disclose all fair values obtained to the board;
AUDITOR DISCLOSURE ¼ presence or absence of a requirement to disclose all fair values obtained to the auditor; and
PERSONAL and SHAREHOLDER ¼ beneficiary of fair value opinion shopping.
the increasing reliance on external valuation professionals, as well as the trade-offs that are made in selecting different controls
to deter fair value opinion shopping.
This study contributes to research and practice in a number of ways. First, it provides ex ante empirical evidence that
managers are inclined to engage in fair value opinion shopping in the absence of a requirement to disclose such behavior to the
board or auditor. This finding is important because it has not been established in the literature, and in the current regulatory
environment there are no explicit deterrents in place to prevent fair value opinion shopping. Considering the propensity of
managers to fair value opinion shop now (as opposed to after a crisis occurs as has been the case with other types of opinion
shopping) may allow for the adoption of mechanisms that deter fair value opinion shopping before it becomes a problem.
Second, this study highlights potential benefits and drawbacks of both auditor and board monitoring. Results suggest that
requiring managers to disclose and explain to either the auditor or the board all instances where multiple fair value opinions are
obtained will deter managers from fair value opinion shopping for personal benefits. However, participants were not deterred by
required disclosure to either the auditor or board when opinion shopping for shareholder benefits. It appears managers perceive the
magnitude of sanctions that auditors can impose to be too small to deter the behavior. And though managers perceive the magnitude of

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board sanctions to be large, they believed that the board was unlikely to punish them for obtaining a second opinion for shareholder
benefits. In fact, participants indicated that they felt the board wanted them to seek a second opinion for shareholder benefits.
Finally, this study extends our understanding of the role of external valuation professionals in the financial reporting
process. Prior archival research has investigated the impact of external versus internal valuation professionals on the reliability

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TABLE 2
Test of H1a, H1b, and H3
Panel A: Manager’s Fair Value Opinion Shopping Decisions Absent Disclosure, Tests of H1a and H1b
Prediction t-stat p-value
Test H1a Shop for shareholder benefits , BOARDabsent, AUDITabsent 5.82 , 0.01*
Midpoint ¼ 5.50 Mean ¼ 7.70
Test H1b Shop for personal benefits , BOARDabsent, AUDITabsent 5.46 , 0.01*
Midpoint ¼ 5.50 Mean ¼ 8.23
Panel B: Planned Contrast for H3

Hypothesized Contrast t p-value
When motivated to obtain personal benefits, a requirement to disclose and explain to the board of 3.01 , 0.01*
directors, the auditor, or both all instances where multiple fair value opinions are obtained will deter
fair value opinion shopping (contrast weights are þ3, 1, 1, 1).
Panel C: Simple Main Effects for H3

Prediction F-statistic p-value
BOARD BOARDpresent , BOARDabsent 9.51 , 0.01*
mean ¼ 6.30 mean ¼ 7.63
AUDITOR AUDITORpresent , AUDITORabsent 4.67 0.03*
mean ¼ 6.44 mean ¼ 7.29
* Denotes significance at the 5 percent level. The dependent variable (manager’s fair value opinion shopping decision) represents manager’s response to a
ten-point scale ranging from 1 (not at all likely to seek a second fair value opinion) to 10 (extremely likely to seek a second fair value opinion).
Panel A provides tests of H1a (H1b) where the average of manager’s opinion shopping decisions for SHAREHOLDER (PERSONAL) benefit conditions
without disclosure to the board or auditor are compared to the midpoint of the scale.
Panel B provides the planned contrast for H3.
Panel C provides simple main effects as a test of H3.
Independent variables were manipulated between subjects.
Variable Definitions:
BOARD ¼ presence or absence of a requirement to disclose all fair values obtained to the board; and
AUDITOR ¼ presence or absence of a requirement to disclose all fair values obtained to the auditor.
of fair values reported in the financial statements (Barth and Clinch 1998; Dietrich et al. 2001; Cotter and Richardson 2002;
Muller and Riedl 2002; Landsman 2007 ). This manuscript extends this line of research by providing initial evidence regarding
ways in which managers might use the leeway inherent in the use of valuation specialists to bias financial reports (i.e., fair
value opinion shop).
While the move to fair value measurement has historically been debated as a trade-off between relevance and reliability, it
appears that the reliability of fair value measurements can be increased by a small change to the financial reporting process.
Simply requiring a manager to explain requests to seek a second fair value opinion from a different valuation professional to the
board (or audit committee) and/or auditor, could serve as an effective means to deter fair value opinion shopping. Implementing
this control could mitigate fair value opinion shopping and improve the reliability of fair value measurements reported in
financial statements.
Similar to other experimental works, this study is limited in the degree of real-world features that it incorporates. It uses a
largely context-free environment in order to capture the broadest possible set of conditions under which managers’ would fair
value opinion shop. It is possible that including more realism could moderate the effects observed. For example, the instrument
did not provide a specific shareholder or personal benefit. The presence of a specific benefit may moderate the degree to which
managers fair value opinion shop. A large number of participants missed manipulation checks. While including these responses

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in the analyses does not alter the inferences and conclusions of this experiment, it is important to recognize that they were
excluded. The experiment used perceptual deterrence measures validated in the criminology literature. It is possible that using
other measures of perceptual deterrence could produce different results.

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Vol. 28, No. 1 DOI: 10.2308/bria-51238

Fair Value Opinion Shopping

BACKGROUND AND HYPOTHESES

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Deterring Fair Value Opinion Shopping

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

EXPERIMENT AND RESULTS

Procedure and Instrument

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

CONCLUSIONS AND LIMITATIONS

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Panel B: Manager’s Fair Value Opinion Shopping Decisions

BOARD DISCLOSURE Yes No Average Yes No Average

Yes Mean 5.84 6.72 6.30 7.37 7.41 7.38

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Panel B: Planned Contrast for H3

Panel C: Simple Main Effects for H3

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

Behavioral Research in Accounting Behavioral Research in Accounting

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