Auditor Scrutiny of Loan Loss Estimates and Bank Lending: Evidence from PCAOB Inspections 

51 Pages Posted: 27 Feb 2025

See all articles by Matthew Ege

Matthew Ege

Texas A&M University - Department of Accounting

Allison Nicoletti

University of Pennsylvania - Accounting Department

Sarah B. Stuber

Texas A&M University - Mays Business School

Date Written: January 27, 2025

Abstract

We examine whether auditor scrutiny over the allowance for loan losses (ALL) is associated with bank lending decisions. Using PCAOB inspection findings over the ALL to capture increases in auditor scrutiny, we find that auditor scrutiny is associated with a larger ALL for homogeneous loans (i.e., residential mortgages and consumer loans) but not for heterogeneous loans (i.e., commercial real estate; commercial and industrial loans). We next find that auditor scrutiny is associated with a shift in lending away from homogeneous loans, consistent with auditor scrutiny reducing the relative attractiveness of homogeneous loans. These findings suggest that policymakers and audit regulators can indirectly affect bank lending by exercising their authority in ways that affect auditor scrutiny.

Suggested Citation

Ege, Matthew and Nicoletti, Allison and Stuber, Sarah, Auditor Scrutiny of Loan Loss Estimates and Bank Lending: Evidence from PCAOB Inspections  (January 27, 2025). The Wharton School Research Paper , Available at SSRN: https://ssrn.com/abstract=5158706 or http://dx.doi.org/10.2139/ssrn.5158706

Matthew Ege

Texas A&M University - Department of Accounting ( email )

430 Wehner
College Station, TX 77843-4353
United States

Allison Nicoletti (Contact Author)

University of Pennsylvania - Accounting Department ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Sarah Stuber

Texas A&M University - Mays Business School ( email )

Wehner 401Q, MS 4353
College Station, TX 77843-4218
United States

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