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Audit Partners and Loan Loss Provisioning: Evidence from U.S. Bank Holding Companies

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Abstract

This paper uses confidential data on audit engagement partner names from regulatory filings of bank holding companies (BHC) to investigate whether partners display individual style that affects the financial reporting of the BHCs. We focus on loan loss provisioning. We construct an audit partner-BHC matched panel data set that enables us to track different partners across different BHCs over time. We employ two empirical approaches to investigate partner style. The first approach tests whether partner fixed effects are statistically significant in loan loss provisioning models. The second approach tests whether a partner’s history of loan loss provisioning predicts future practices for the same partner. Our empirical evidence does not support systematic differences in loan loss provisioning across audit engagement partners, suggesting that the audit firm’s standards and quality control constrain personal partner style.

Suggested Citation

  • Gauri Bhat & Hemang Desai & Christoffer Koch & Erik J. Mayer & Nitzan Tzur-Ilan, 2022. "Audit Partners and Loan Loss Provisioning: Evidence from U.S. Bank Holding Companies," Working Papers 2209, Federal Reserve Bank of Dallas, revised 20 Nov 2024.
    • Handle: RePEc:fip:feddwp:94488
    DOI: 10.24149/wp2209r1
    Note: This revision has a new title and a new author.
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    References listed on IDEAS

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    1. Renée B. Adams & Heitor Almeida & Daniel Ferreira, 2005. "Powerful CEOs and Their Impact on Corporate Performance," The Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1403-1432.
    2. Beatty, Anne & Liao, Scott, 2011. "Do delays in expected loss recognition affect banks' willingness to lend?," Journal of Accounting and Economics, Elsevier, vol. 52(1), pages 1-20, June.
    3. Beatty, Anne & Liao, Scott, 2014. "Financial accounting in the banking industry: A review of the empirical literature," Journal of Accounting and Economics, Elsevier, vol. 58(2), pages 339-383.
    4. Mikko Zerni, 2012. "Audit Partner Specialization and Audit Fees: Some Evidence from Sweden," Contemporary Accounting Research, John Wiley & Sons, vol. 29(1), pages 312-340, March.
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    Cited by:

    1. Tran, Arthur M. & Griffiths, Mark D. & Winters, Drew B., 2023. "Small bank managers are prudent: A Benford’s Law approach to analyzing loan loss allowances," Journal of Economics and Business, Elsevier, vol. 125.

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    More about this item

    Keywords

    auditing; banking; Audit Partner Names; Audit Engagement; PCAOB; audit partner tenure; auditor rotation;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations
    • L84 - Industrial Organization - - Industry Studies: Services - - - Personal, Professional, and Business Services
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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