An empirical investigation of the impact on the decision processes of loan officers of separate accounting standards for smaller and/or closely held companies

The issue under investigation was whether certain accounting and reporting requirements should be modified or abandoned for smaller and/or closely held businesses. Four areas were specifically examined earnings per share, deferred incoae taxes, leases, and inflation adjusted information. The subjects, commercial bank loan officers, were presented with information about a hypothetical small, family-owned company requesting a line of credit and asked to make a decision. Verbal and nonverbal behaviors were recorded and analyzed.

The results indicated that earnings per share and deferred tax information were not useful to bankers in this decision situation. The leasing information was useful. A conclusion about the usefulness of the inflation adjusted data was deferred because of the unfamiliarity of the subjects with the information. In general, therefore, there was evidence that differential accounting principles are feasible in certain areas. However, future research should attempt to reproduce these results in other decision contexts and with other users of the financial statements of small, closely held businesses prior to the implementation of any changes in accounting standards.