The use of accounting information in bank lending decisions

Abstract

This paper examines the impact of accounting information on the sequential judgements of experienced bank loan officers using realistic lending cases in an experimental setting. The findings suggest that loan officers reach a high level of confidence early in the lending process based on summarized accounting information and other general background data. When, later in the process, factors concerning the firm's financial plans and their underlying assumptions are varied, lenders adjust their confidence in whether or not to grant the loan in the expected directions, even when the subsequent evidence disconfirms their original positions.