The signaling effect of tone: The influence of key audit matters' tone on bank lending decisions

I apply the BERT model to assess the tone of key audit matters (KAMs) disclosed by auditors of Chinese A-share companies from 2016 to 2022, and investigate the impact of tone on bank lending decisions. The findings indicate that a negative tone serves as a risk signal by helping reveal information risk and assess credit risk. Positive and negative tones exhibit asymmetric signaling effects, with expected tones exerting a stronger influence than unexpected tones. These results highlight that the audit report's tone is a more credible risk indicator than management's tone, thereby providing strong support for banks' credit decision-making process.