Information Technology Adoption and Loan Loss Recognition

This study finds that the level of information technology (IT) adoption in banks is positively related to loan loss provision (LLP) timeliness. This relation is validated by our instrumental variable analysis, and moreover, this relation is more pronounced for banks with more geographically dispersed branches and for banks with a high level of digital human capital. A high level of digital human capital suggests that a significant proportion of staff is capable of using IT analytical tools to assess bank loan credit risk. We further find that the IT adoption level of banks is positively associated with the likelihood of employing credit risk models. We also find that banks' IT adoption level is positively related to our proxies for banks' internal information environment quality. As a result, we further find that the IT adoption levels of banks are negatively associated with audit fees, suggesting that banks' IT adoption facilitates auditors' work.