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

Managerial Finance

ISSN: 0307-4358

Publication date: 1 May 1992

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.

Citation

Riahi‐Belkaoui, A. (1992), "Accrual Accounting, Modified Cash Basis of Accounting and the Loan Decision: An Experiment in Functional Fixation", Managerial Finance, Vol. 18 No. 5, pp. 3-13. https://doi.org/10.1108/eb013691

Publisher

:

MCB UP Ltd

Copyright © 1992, MCB UP Limited

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