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Banks should be more sensitive to information
risk and IRS audit risk when lending to firms with
greater levels of these risks. Following
Bharath, Sunder, and Sunder (2008)
and Guedhami and Pittman (2008), we use 1) abnormal discretionary accruals based on the
modified Jones (1991) model (Dechow, Sloan, and Sweeney,1995) to capture firm information risk;
and (2) the threat of a face-to-face IRS audit as reported by Transactional Records Access Clearinghouse (TRAC) to capture the IRS audit
probability........[citing TRAC research].
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