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Accrual Accounting, Modified Cash Basis of Accounting and the Loan Decision An Experiment in Functional Fixation

Accrual Accounting, Modified Cash Basis of Accounting and the Loan Decision An Experiment in... The paper presents the results of an empirical study in which bank loan officers evaluated a loan application which were accompanied by financial statements based on either accrual accounting or modified cash basis of accounting MCBOA. The loan officers first decided whether to grant the loan and determined an interest rale. Second, they evaluated the financial statements information on the basis of three quality attributes Overall reliability, freedom from clerical errors and freedom from the effects of fraud. The results verified a functional fixation hypothesis by showing that the loan officers examining the financial statements of the same company using either accrual information or MCBOA showed clear preference for the company when faced with accrual information. A conditioning factor is used to explain the results. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Accrual Accounting, Modified Cash Basis of Accounting and the Loan Decision An Experiment in Functional Fixation

Managerial Finance , Volume 18 (5): 11 – May 1, 1992

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0307-4358
DOI
10.1108/eb013691
Publisher site
See Article on Publisher Site

Abstract

The paper presents the results of an empirical study in which bank loan officers evaluated a loan application which were accompanied by financial statements based on either accrual accounting or modified cash basis of accounting MCBOA. The loan officers first decided whether to grant the loan and determined an interest rale. Second, they evaluated the financial statements information on the basis of three quality attributes Overall reliability, freedom from clerical errors and freedom from the effects of fraud. The results verified a functional fixation hypothesis by showing that the loan officers examining the financial statements of the same company using either accrual information or MCBOA showed clear preference for the company when faced with accrual information. A conditioning factor is used to explain the results.

Journal

Managerial FinanceEmerald Publishing

Published: May 1, 1992

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