Ability of Accounting and Audit Quality Variables to Predict Bank Failure During the Financial Crisis

We examine the ability of selected accounting and audit quality variables measured in a period prior to the financial crisis (i.e., the four quarters of 2006), to predict banks that subsequently failed during the financial crisis. These predictor variables include balance sheet strength, loan characteristics, financial reporting discretion, and auditor type and auditor industry specialization. We employ two sets of samples from the US: a …