The Effect of Restatements on Commercial Lending Decisions
DOI:
https://doi.org/10.60154/jaepp.2025.v26n2p162Keywords:
Commercial lending, restatementsAbstract
This study examines whether restatement of financial statements for a commercial loan applicant affects loan officers’ judgments. An experiment was conducted with 89 commercial lenders, who provided risk assessments and lending probabilities for a hypothetical loan applicant. One independent variable involved the manipulation of the type of restatement at two levels -- restatements due to errors versus restatements due to irregularities. Another manipulation involved the entity that prompted the restatement – company management versus outside auditors. A control group was informed that the company had not recently experienced any restatements. Findings indicate that restatements adversely impact lenders’ judgments about the applicant company. Furthermore, restatements caused by irregularities more adversely impact lenders’ judgments than restatements caused by errors. Additionally, restatements prompted by auditors more adversely impact lenders’ judgments than restatements prompted by company management.
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