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The purpose of this paper is to investigate whether negative incentives in the pay-for-performance mechanism would trigger loan officers to strategically reject potentially good loans. If so, what is the feasible solution to alleviate the problem.

A framed field experiment was conducted to test loan decision behaviors using loan officers from Rural Credit Cooperatives in Shandong, China. A 2 by 2 between-subject design was adopted to generate variation in incentives and prior information about credit risks.

Results showed that loan officers did ration credit by rejecting more loans when facing risks of personal income loss. However, providing risk information about the application pool boosted the approval rate and offset the behavioral responses by a roughly same magnitude.

Findings in this study suggest that certain institutional settings can result in credit rationing via strategic loan misclassification. Further, information sometimes generates similar effects as those costly incentives or mechanisms that are not implementable in practice.

This study adopted an innovative monetized experimental design that allows researchers to examine the (otherwise unobservable) trade-offs between Type I and Type II error in loan misclassification as incentives change. In addition, an anchoring prior information treatment is used to solicit the relative power of almost costless information and costly monetary incentives, and to point out a potentially feasible solution.

This study aims to investigate the effects of individual knowledge/experience on the audit expectation gap of loan officers in Malaysia and the subsequent effect of the audit expectation gap on their loan decision quality. In addition, the mediation role of the audit expectation gap is examined.

Copies of a structured questionnaire were randomly distributed to three hundred and twenty loan officers of the top four commercial banks in Malaysia. A total of 212 completed questionnaires were analysed using structural equation modelling.

The findings indicate that the knowledge/experience factors could significantly mitigate the audit expectation gap. More importantly, the audit expectation gap is found to adversely affect the loan decision quality. The mediating role of the audit expectation gap is also supported.

The findings of this study may not be generalizable to other economic, cultural and political settings.

Banks may narrow their loan officers' audit expectation gap and hence, their non‐performing loans through selective recruitment or appropriate knowledge/skill enhancement in‐house training programmes.

This study provides the needed empirical evidence of the adverse effect of audit expectation gap on the loan decision quality of bank officers in Malaysia. Unlike the 2009 findings of Noghondari and Foong, which was based on an Islamic banking context in Iran, this study, which was based on the conventional banking context, found that accounting‐related and job‐related work experience of bank officers had significantly mitigated the audit expectation gap. The findings have important implications on the recruitment and training of loan officers by banks.

With exclusive data from a commercial microfinance institution (MFI) in Madagascar, the purpose of this paper is to investigate if loan officer rotation (change of loan officer) has an effect on credit access (loan approval) in rural and in urban areas. The authors further analyze how the frequency of loan officer rotation affects credit access in rural and in urban areas.

The authors apply propensity score matching to compare credit access between loan applicants who experienced loan officer rotation and loan applicants who experienced no loan officer rotation in rural and in urban areas.

Results show that loan officer rotation has a positive and statistically significant effect on credit access. The authors observe further that loan officer rotation has a different effect on credit access in rural and in urban areas. Whilst rural loan applicants who experienced loan officer rotation are more likely to have credit access, urban loan applicants show no statistically significant effect of loan officer rotation on credit access. For the frequency effect on credit access, the authors observe that one loan officer rotation has a positive and statistically significant effect on credit access whereas results are mixed for two loan officer rotations.

Even though the authors can show that loan officer rotation can improve credit access to loan applicants, especially in rural areas, the conditions in Madagascar are unique. Therefore, results need to be verified in other countries and institutional contexts.

From the perspective of MFI, the authors recommend that the management of MFI needs to provide better tools to loan officers to improve on the evaluation of agricultural loan products or standardize the assessment of agricultural loan products to improve on lending decisions. Further, if applicable, the authors recommend that MFI should consider using credit worthiness assessment procedures which rely less on loan officer’s judgment for loan evaluation, such as automated systems. From the perspective of loan applicants, the authors recommend that loan applicants should request for a change of loan officer if they experience successive loan applications rejection.

To the authors’ knowledge, this paper is the first to provide empirical evidence on the effect and frequency of loan officer rotation on credit access in Sub-Sahara Africa, and Madagascar, in particular.

This paper aims to investigate whether loan officers' risk taking in credit decisions are associated with their personal financial risk preference and personality traits or solely with bank-contextual and loan-relevant factors.

An online survey administered in six large Swedish banks to 163 loan officers responsible for assessing credit risk and approval of loan applications. The loan officers rated their likelihood of approving fictitious loan applications from business companies.

The loan officers' credit risk taking is associated with bank-contextual factors, directly with perceived organizational credit risk norms and indirectly with self-confidence in assessing credit risks through attitude to credit risk taking. A direct association is also found with personal financial risk preference but not with personality traits.

Increased awareness of that loan officers' personal financial risk preference is associated with their credit risk taking in loan decisions but that the banks' risk policy has a stronger association. Banks' managements and boards should therefore assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.

Increased awareness of that loan officers' credit risk taking is associated with personal financial risk preference but more strongly with the banks' risk policy that motivate banks' managements and boards to assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.

The first study which directly compare the associations of loan officers' risk taking in credit approvals with personal risk preference and personality traits versus bank-contextual factors and loan-relevant information.

Loan officer decisions are of particular importance to entrepreneurial firms which rely heavily on debt financing as a primary source of capital. The authors investigate whether social purpose in these firms impact loan officer response to the violation of a debt covenant and whether there is a differential response in decision making between loan officers that work at local banks and those that work at national banks.

In total 332 loan officers from cities in the South and Midwest United States participated in a quasi-experiment comparing entrepreneurial firms that violated their debt covenants. The loan officers were asked to evaluate loan materials and decide whether they would enforce loan covenant provisions of renegotiated interest rate and by what magnitude. In the treatment group, the loan officer evaluated loan materials of an entrepreneurial firm that included information related to the firms social purpose within their community. In the control group, the evaluation materials did not include this information.

Consistent with social capital theory, the results suggest that loan officers view community involvement as beneficial to entrepreneurial firm value. Loan officers were less likely to increase interest rates among firms that demonstrated social purpose. Loan officers that decided to increase interest rates punished socially purposeful firms less severely than non-socially purposeful firms. Additionally, loan officers at community banks were less likely to increase interest rates than those at national banks.

While the prior literature examines loan covenant violations, the authors focus on the impact of loan officer decision making in entrepreneurial firms specifically around covenant enforcement. Loan officer decisions have important implications for debt financing but are typically not observable to researchers. Prior work examining the relationship between social purpose and debt financing focuses on large public firms. This study recognizes that social purpose in entrepreneurial firms is less formalized and explicit and thus should be studied separately from large firms.

The present paper’s aim lies in providing an empirical analysis of whether the loan officers’ psychological traits display an explanation of their subjective prediction accuracy.

A qualitative and qualitative analysis has also been applied.

The reached results reveal that, with respect to microfinance institutions, the loan officers’ accurate subjective judgment crucially relies on the principle of learning-through-experience so as to construct a special type of relevant skills and competences. Learning is both an intellectual and an emotional process, whereby loan officers acquire certain specific experience likely to enhance their cognitive skills and shape their emotional intelligence, which would, in turn, sharpen their forecasting accuracy. In fact, the higher emotional intelligence is, the easier it makes it for loan officer to adjust or reduce their judgmental errors and make a more effective application of the pertinent heuristics. Conversely, however, the lack or absence of emotions and feelings of novice loan officer is likely to hinder and inhibit the cognitive as well as the learning processes.

The paper considers the role of individual psychological traits on the decisions of experienced and inexperienced individuals when deciding on the default risk in the context of loan decisions. Learning is both an intellectual and an emotional process, whereby loan officers acquire certain specific experience likely to enhance their cognitive skills and shape their emotional intelligence, which would, in turn, sharpen their forecasting accuracy.

The purpose of this research is to use an accountability framework to explain the emerging tensions in accountability and how an intended bottom‐up approach became progressively supplanted. This paper is set within an emerging Zambian microfinance organisation moving into crisis.

A series of semi‐structured interviews were conducted with key local microfinance specialists, managers and accountants, clients and past and current loan officers. Live observation of the client‐loan officer interface and internal meetings provided triangulation on accountability relationships in the midst of crisis. Data were analysed using NVIVO, a qualitative computer software package.

The findings show that tensions between vertical and horizontal accountability in practice can be directly translated into heightened pressure and stresses on both the non‐governmental organisation (NGO) and its loan officers, which constrain overall accountabilities to other stakeholders and disguise other potential dysfunctions.

This study focussed on accountability at the grassroots in microfinance NGOs with a social mission. It reveals potential for further personal, community and socially constituted accounting research within microfinance in particular.

The paper adds to the literature on NGO accountability. It will be of value to researchers and practitioners seeking to gain a better understanding of not‐for‐profit organisations whose goals are not primarily wealth creation. It also gives details on under‐researched areas in accounting, namely NGOs and poverty reduction, and practices in Sub‐Saharan Africa.

The purpose of this paper is to analyze recent findings in the research on bankers' lending decision making, to merge relevant findings in psychology and economics and create a comprehensive review of the literature.

The authors used a systematic article search for empirical studies when conducting the research.

The findings are analyzed on the basis of human decision‐making research. The results of the review are three conclusions about loan officers' decision making: their dependency on bank characteristics, their decision‐making biases, and their deliberate and intuitive reasoning approaches.

The paper's findings are important, both as a summary of the literature on lending decision making and also as a foundation for future research.

Data were collected from loan officers using a computerized process-tracing program to help shed some light on how source credibility impacts the judgments made by loan officers. Loan officers did not structure loans more restrictively regardless of whether they were in the positive or negative character condition or whether they approved or denied the loan. Negative source credibility affected decision process effort but did not produce the tradeoff between loan approval and loan structure that is suggested in the literature. Although significantly more (fewer) loans were denied when character information was negative (positive), a majority of loan officers in the negative character condition approved the loan. While most loan officers were aware of negative source credibility, they did not react by denying loans or adjusting loan structure.

This paper reviews studies that have examined how accounting information impacts commercial lending judgments. Issues discussed involve the usefulness of accounting data in lending decisions, effects of different accounting methods on lenders’ judgments, bankruptcy and default judgments, and decision processes pertaining to the use of accounting information in lending decisions. Additionally, the paper reviews the research on how audits and other forms of assurance influence commercial loan officers’ judgments. Topics include the way perceived auditor independence influences loan officers’ judgments, the impact of financial statement audits and audit opinions on lending decisions, how internal control reports and other CPA firm reports influence loan decisions, ways in which audit report disclosures and wording impact lending decisions, how perceived auditor quality affects lending decisions, and the effects of limited assurance engagements on loan officers’ judgments.