Do Types of Income Statement Items and Direction of Restatements Affect Lending Decisions?

Arnold Schneider ()
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Arnold Schneider: Scheller College of Business, Georgia Institute of Technology, 800 W. Peachtree St., Atlanta, GA 30308, USA

JRFM, 2025, vol. 18, issue 11, 1-11

Abstract: This study examines whether restatements involving revenues have a different impact on lending decisions than restatements involving expenses and whether restatements that result in increased net income impact lending decisions differently than restatements that result in decreased net income. Using an experimental methodology, a scenario involving a hypothetical loan applicant was presented to 64 commercial lenders. Participants assessed the risk associated with the loan applicant as well as the likelihood of credit approval. This study did not find statistically significant differences, at the current sample size, for risk assessments or likelihood of credit approval, between restatements caused by revenue misstatements versus restatements caused by misstatements of expenses. In addition, no statistically significant differences were found at the current sample size, for risk assessments or likelihood of credit approval, between income-decreasing restatements and those involving income-increasing restatements.

Keywords: restatements; commercial lending; income statement (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2025
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