Research Summary 3: The Effect of Auditor Attestation and Tolerance for Ambiguity on Commercial Lending Decisions

What influences loan officers more: facts or feelings?

hen 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. We found that the level of attestation had no effect on loan decisions, but personal tolerance for ambiguity did. A well-known psychological measure of tolerance for ambiguity was used.

The implications for practice are that loan officers may not adequately consider the credibility of financial information when evaluating commercial loans. Training may be warranted to teach loan officers the differences among audits, reviews and information that are prepared by management.

For the full text of the research paper, see Auditing: A Journal of Practice & Theory, Fall 2000, vol. 19, no. 2.

Ronald A. Davidson is associate professor at Arizona State University. His e-mail address is . Michael E. Wright is associate professor at the University of Calgary. His e-mail address is

This series is based on work published in Auditing: A Journal of Practice & Theory. Copyright 1999, 2000 and 2001 by the American Accounting Association. The intent is to bridge the gap between researchers and practitioners by offering concise practice summaries of cutting-edge research in the field of auditing. This material is used with permission of the publisher.


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