Are Commercial Lending Decisions Affected by Severity of Internal Control Material Weaknesses and Tolerance for Ambiguity?
This study examines whether the severity of a material internal control weakness disclosure impacts lending decisions. In addition, this study also investigates whether loan officers’ tolerance for ambiguity affects lending decisions. An experiment was conducted with loan officers, who provided risk assessments and lending probabilities for a hypothetical borrower. One independent variable, a material weakness in the borrower’s internal controls, was manipulated using two levels – more severe versus less severe. The other independent variable, tolerance for ambiguity, was measured with a commonly used scale for this personality characteristic. Findings indicate that more severe material internal control weaknesses lead to higher risk assessments by lenders and lower probabilities of granting lines of credit. Also, lenders having a low tolerance for ambiguity provide higher risk assessments and lower probabilities of granting lines of credit than do lenders having a high tolerance for ambiguity
Year of publication: |
2022
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Authors: | Schneider, Arnold |
Publisher: |
[S.l.] : SSRN |
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