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Information content and recency effect of the audit report in loan rating decisions

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We examined the significance of the audit report in loan rating decisions using the belief revision model. We designed a laboratory experiment where the sign of the audit report is mixed with other annual financial information in a series of sequential evidence. The results of an experimental design, using 106 loan officers from international financial institutions, support the hypothesis that the qualified audit report appears to be an independent and useful piece of evidence when it is contrary to favourable financial expectations. Our findings also support that the ‘recency effect’ might influence international commercial loan officers’ perception of the qualified audit report.

Keywords: Audit report; Audit report information content; G21; Loan officers; M42; Recency effect

Document Type: Research Article


Affiliations: 1: A. Gary Anderson Graduate School of Management, University of California, Riverside, 92521, USA 2: Facultad de Ciencias Económicas y Empresariales, University of Alcalá, Madrid, 28802, Spain

Publication date: 2007-06-01

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