Audit Partners and Loan Loss Provisioning: Evidence from U.S. Bank Holding Companies
Abstract: Using confidential data on audit partner names from 2006 to 2019 for bank holding companies (BHCs), we examine partners' impact on loan loss provisioning. Using a fixed effects approach, we find some evidence that individual partners affect provisioning, especially at public BHCs and BHCs audited by large audit firms. However, these results do not obtain in the post-financial crisis period. We also examine the association between partner tenure and provisioning. We find that allowance is increasing in partner tenure, particularly for public BHCs and small BHCs. The result for small BHCs is obtained in the post-financial crisis period as well. Thus, partner heterogeneity is more likely to manifest during periods of high economic uncertainty, but otherwise, there seems to be consistency in approach to audits across partners within a firm. Our results also suggest that audit scrutiny increases as the partners stay longer with the engagement, especially for small BHCs.