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

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  • Arnold Schneider

Abstract

Purpose - This paper aims to examine whether knowledge about companies switching auditors from Big 4 firms to regional firms affects commercial lending decisions. Design/methodology/approach - The approach used is an experiment where bank loan officers make judgments about risk and probabilities of granting a line of credit. Findings - Neither 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/implications - Lenders 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 implications - When 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 value - This study adds to the auditor switching literature by investigating the effects of switches from Big 4 firms to regional firms on commercial lending decisions.

Suggested Citation

  • Arnold Schneider, 2017. "Is commercial lending affected by knowledge of auditor switches from Big 4 firms to regional firms?," Accounting Research Journal, Emerald Group Publishing Limited, vol. 30(2), pages 153-164, July.
    • Handle: RePEc:eme:arjpps:arj-12-2014-0110
    DOI: 10.1108/ARJ-12-2014-0110
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    Citations

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    Cited by:

    1. Arnold Schneider, 2021. "Does knowledge about a borrowing firm’s internal audit influence bank lending decisions?," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(3), pages 304-314, September.
    2. Schneider, Arnold, 2018. "Studies on the impact of accounting information and assurance on commercial lending judgments," Journal of Accounting Literature, Elsevier, vol. 41(C), pages 63-74.
    3. Hadri Kusuma & Diana Farida, 2019. "Likelihood of Auditor Switching: Evidence for Indonesia," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 8(2), pages 29-40, April.

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