Accounting choices: Implications for credit-granting decisions

Abstract

Recent research shows that financial reports are losing relevance. Mainly this is due to the growing strategic importance of intangible assets. A possible solution is to modifiy accounting standards so that financial statements include more self-generated intangible assets, but taking into account their inherent risk and difficulty of valuation. We surveyed loan officers who were asked to assess the credit-worthiness of hypothetical company. The only information given was simplified versions of financial statements. Half the group were given statements where research and development costs had been capitalized. The other half received statements in which these costs had been treated as an expense. The findings show that capitalization significantly increased the likelihood of a positive response to a loan request.