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Is commercial lending affected by knowledge of auditor switches from Big 4 firms to regional firms?

Is commercial lending affected by knowledge of auditor switches from Big 4 firms to regional firms? PurposeThis paper aims to examine whether knowledge about companies switching auditors from Big 4 firms to regional firms affects commercial lending decisions.Design/methodology/approachThe approach used is an experiment where bank loan officers make judgments about risk and probabilities of granting a line of credit.FindingsNeither risk assessments nor probabilities of granting credit differed for companies that switch auditors from Big 4 firms to regional firms as compared to companies that did not switch auditors. For companies that did switch auditors, providing a reason for the switch did not influence lending decisions.Research limitations/implicationsLenders were given questionnaires that do not contain all of the information they may have used in actual loan decision settings. Also, the hypothetical nature of the decisions and incentives may not produce the responses that would be given in actual lending scenarios.Practical implicationsWhen applying for bank loans, companies need not be concerned about having switched auditors from Big 4 to regional firms. Also, companies that switch from Big 4 firms to regional firms need not worry about whether or not to provide a reason for the audit firm switch.Originality valueThis study adds to the auditor switching literature by investigating the effects of switches from Big 4 firms to regional firms on commercial lending decisions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Accounting Research Journal Emerald Publishing

Is commercial lending affected by knowledge of auditor switches from Big 4 firms to regional firms?

Accounting Research Journal , Volume 30 (2): 12 – Jul 3, 2017

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1030-9616
DOI
10.1108/ARJ-12-2014-0110
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to examine whether knowledge about companies switching auditors from Big 4 firms to regional firms affects commercial lending decisions.Design/methodology/approachThe approach used is an experiment where bank loan officers make judgments about risk and probabilities of granting a line of credit.FindingsNeither risk assessments nor probabilities of granting credit differed for companies that switch auditors from Big 4 firms to regional firms as compared to companies that did not switch auditors. For companies that did switch auditors, providing a reason for the switch did not influence lending decisions.Research limitations/implicationsLenders were given questionnaires that do not contain all of the information they may have used in actual loan decision settings. Also, the hypothetical nature of the decisions and incentives may not produce the responses that would be given in actual lending scenarios.Practical implicationsWhen applying for bank loans, companies need not be concerned about having switched auditors from Big 4 to regional firms. Also, companies that switch from Big 4 firms to regional firms need not worry about whether or not to provide a reason for the audit firm switch.Originality valueThis study adds to the auditor switching literature by investigating the effects of switches from Big 4 firms to regional firms on commercial lending decisions.

Journal

Accounting Research JournalEmerald Publishing

Published: Jul 3, 2017

References