The Impact of Audit Committee and Client Financial Condition on Bankers' Loan Decisions

This study investigated the effects of audit committee and client financial condition on bankers' loan decision-making. Using 44 bankers as subjects, the results suggest that the existence of an audit committee increased the likelihood of bankers' approving a loan. Partial analyses of the sub-groups suggest that when the client was in poor financial condition, there was a marginally significant relationship between loan approval and the existence of an audit committee. The paper also suggests that loanable funds of a bank are most importantly rationed not by interest rate as a price but by the creditworthiness of the loan applicant. As such, frequencies of loan approvals is a more powerful measure of the bankers' loan decisions than interest rate premium.