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The Effect of Bank Audit Committee Financial Experts on Loan Loss Provision Timeliness
Choi, Diana

2018, Doctor of Philosophy, Ohio State University, Accounting and Management Information Systems.
This paper studies the effect that appointing financial experts to banks’ audit committees has on banks’ loan loss provision timeliness. The loan loss provision is the amount that banks set aside to cover losses on loans. Because the provision estimate affects banks’ profits, credit risk management, and the overall economy, understanding banks’ provisioning practice is a topical issue in the literature (Beatty and Liao 2011; Bushman and Williams 2012). I identify two regulatory shocks that implemented audit committee expertise provisions as quasi-natural experiments and investigate the effects on loan loss provision timeliness. Specifically, the two regulatory shocks I consider are the Federal Depository Insurance Corporation Improvement Act of 1991 (FDICIA) and a listing standard for NYSE and NASDAQ firms legislated in 1999. I classify treatment and control groups based on the regulatory asset threshold, and find that treatment group banks make more timely recognition of expected losses than control group banks. Building on these results, I examine the effects of appointing different types of financial experts on bank audit committees. Specifically, I consider former affiliated auditors, former unaffiliated auditors, former regulators, and those who are neither former auditors nor former regulators (Others). Using propensity score weighting, I find that appointing affiliated auditors is associated with less timely loan loss provisions relative to appointing unaffiliated auditors. Furthermore, I show that hiring former regulators is associated with less timely loan loss provisions relative to hiring Others or unaffiliated auditors. My findings suggest that audit committee financial expertise increases the timeliness of loan loss recognition; however, having audit committee members who are affiliated with the bank’s auditors or regulators could result in delayed recognition of loan losses.
Anne Beatty (Committee Co-Chair)
Xue Wang (Committee Co-Chair)
Darren Roulstone (Committee Member)
Tzachi Zach (Committee Member)
Haiwen Zhang (Committee Member)
111 p.

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Choi, D. (2018). The Effect of Bank Audit Committee Financial Experts on Loan Loss Provision Timeliness . (Electronic Thesis or Dissertation). Retrieved from https://etd.ohiolink.edu/

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Choi, Diana. "The Effect of Bank Audit Committee Financial Experts on Loan Loss Provision Timeliness ." Electronic Thesis or Dissertation. Ohio State University, 2018. OhioLINK Electronic Theses and Dissertations Center. 15 Nov 2018.

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Choi, Diana "The Effect of Bank Audit Committee Financial Experts on Loan Loss Provision Timeliness ." Electronic Thesis or Dissertation. Ohio State University, 2018. https://etd.ohiolink.edu/

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