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Bank audit practices and loan loss provisioning

Drew Dahl

Journal of Banking & Finance, 2013, vol. 37, issue 9, 3577-3584

Abstract: I empirically examine the evolution of loan loss accounting across banks that differ categorically by external auditing practice. Using a partial adjustment model, and a sample of 75,505 observations on affiliated banks, 1995–2009, I find evidence of convergence across audit categories in target ratios of provisions for loan losses to nonaccrual loans. This is consistent with a standardized method of accounting for “impaired” loans. I observe less convergence, on the other hand, in target ratios of provisions for loan losses to loans, which appears to accommodate a role for managerial discretion.

Keywords: Loan loss provisions; Bank auditing; Bank regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 M41 M42 (search for similar items in EconPapers)
Date: 2013
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