The Effect of Auditor Attestation and Tolerance for Ambiguity on Commercial Lending Decisions

By Davidson, Ronald A.; Wright, Michael E. | Journal of Accountancy, January 2001 | Go to article overview
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The Effect of Auditor Attestation and Tolerance for Ambiguity on Commercial Lending Decisions


Davidson, Ronald A., Wright, Michael E., Journal of Accountancy


What influences loan officers more: facts or feelings?

When commercial lending officers make a loan decision, are they able to distinguish among different levels of attestation? Or is a personal characteristic such as their "tolerance for ambiguity"--the way people react to uncertain situations--an important factor in lending decisions?

In our research, we assume that loan officers make three sequential decisions in the loan evaluation process: estimating the level of risk associated with the loan, determining whether they should recommend the loan and deciding the interest rate to be charged. We also assume that the financial information provided by commercial loan applicants can be audited, reviewed or prepared by management with no involvement by auditors. The level of attestation should affect the perceived credibility--audited financial information should have the greatest credibility, while financial information prepared by management with no involvement of their accountants should have a lower level of credibility. Lenders' tolerance level should affect how they react to an ambiguity, making them approve or reject the application.

Seventy-five commercial lending officers from a number of banks were asked to evaluate a realistic, hypothetical loan given different types of attestation.

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