The effect of a potential borrower's reporting reputation and financial condition on commercial loan officers' estimates of forecast bias and subsequent loan recommendations

Richard Houston and Michael Peters

Accounting and Business Research, 2001, vol. 31, issue 3, 163-174

Abstract: This paper investigates whether a potential borrower's reporting reputation and financial condition affect commercial loan officers' loan judgments and recommendations after receiving an earnings forecast that predicts improved financial performance. The results suggest that the earnings forecast is perceived as more credible in the presence of (1) a reputation for objective reporting, and (2) strong financial condition. Also, a reputation for objective reporting allowed the borrower to more credibly convey the expected improvement in performance when financial condition was weak. However, while financial condition predictably affects loan recommendations (likelihood of granting the loan, interest rate), reporting reputation does not. While we find that commercial loan officers discount forecasts under similar circumstances as stock analysts, results suggest that the consequences of developing a reputation for aggressive reporting (e.g., aggressive selection of accounting methods and estimates within GAAP) may be greater in a stock valuation setting (prior research documents lower stock prices) than in a loan setting.

Date: 2001
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/00014788.2001.9729612 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:acctbr:v:31:y:2001:i:3:p:163-174

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RABR20

DOI: 10.1080/00014788.2001.9729612

Access Statistics for this article

Accounting and Business Research is currently edited by Vivien Beattie

More articles in Accounting and Business Research from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().