The signaling effect of tone: The influence of key audit matters’ tone on bank lending decisions

Mingli Duan

Finance Research Letters, 2025, vol. 76, issue C

Abstract: I apply the BERT model to assess the tone of key audit matters (KAMs) disclosed by auditors of Chinese A-share companies from 2016 to 2022, and investigate the impact of tone on bank lending decisions. The findings indicate that a negative tone serves as a risk signal by helping reveal information risk and assess credit risk. Positive and negative tones exhibit asymmetric signaling effects, with expected tones exerting a stronger influence than unexpected tones. These results highlight that the audit report's tone is a more credible risk indicator than management's tone, thereby providing strong support for banks’ credit decision-making process.

Keywords: Key audit matters; Bank lending decisions; Information risk; Credit risk; Bert language model (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:76:y:2025:i:c:s1544612325001928

DOI: 10.1016/j.frl.2025.106928

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