Issue Information

• DOI: http://doi.org/10.1002/jcaf.22355
• Published date: 01 July 2019
• Date: 01 July 2019

VOLUME 30, NUMBER 3 •July 2019

Editorial Review

5Is yield curve predicting a US recession in 2020?

Damir Tokic

The yield curve spread has predicted every US recession. As of mid-2019, the inverted yield

curve spread is flashing a warning sign about a possible US recession in 2020. This article

explains the yield curve spread, and discusses the possible 2020 recession triggers.

Blind Peer Reviews

8The effect of insured liabilities on the demand for external audits: The case of privately-

held United States banks

Jamie Hoelscher, Brad J. Reed, and Gregory Sierra

We examine the relationship between government insurance for bank deposits and bank

management's voluntary audit choice for a set of privately-held U.S. banks. Unlikely

publicly-traded banks, U.S. regulations do not require private banks to obtain annual audits.

However, all U.S. banks have the feature of insurance on customer deposits that is provided by

the Federal Deposit Insurance Corporation—these insured customer deposits comprise a

significant portion of the debt of most banks. Consistent with prior research we find that the

voluntary choice to be audited is positively related to agency costs as measured by the size of

bank assets. Our results show a negative association between a bank's insured deposits and the

choice to be audited but (consistent with prior literature) a positive association with uninsured

liabilities. In addition, we hypothesize and find that the bank's voluntary audit choice is

positively related to the bank's growth rate and related to the bank's primary federal regulator.

Taken together, these findings are consistent with the notion that audits create value primarily

for uninsured depositors and have implications for bank managers, their customers, and

regulators.