Accounting Information Quality and Lending Decision Making Processes
Keywords:
accounting information quality, lending decisions, cognitive processes, verifiability, interpretability, decision-making heuristicsAbstract
This research investigates the nuanced relationship between accounting information
quality (AIQ) and lending decision-making processes, proposing a novel conceptual
framework that integrates cognitive psychology, information theory, and institutional
economics. While prior literature has predominantly examined AIQ through quantitative metrics of earnings management or accrual quality, this study introduces a
multidimensional construct that captures both objective verifiability and subjective
interpretability dimensions of accounting information. We develop and test a processoriented model that traces how different AIQ dimensions influence sequential stages of
lender cognition—from initial screening to final covenant structuring—using a mixedmethods approach combining experimental simulations with archival loan data analysis. Our findings reveal that lenders do not respond uniformly to AIQ dimensions;
rather, their sensitivity varies systematically with decision stage, institutional context,
and individual expertise. Specifically, we document that verifiability metrics primarily
affect early screening decisions, while interpretability factors dominate later negotiation
stages. Furthermore, we identify a previously unrecognized ’compensatory heuristic’
whereby lenders substitute between AIQ dimensions when making trade-offs under
uncertainty. The study contributes to accounting, finance, and decision sciences by
providing a more granular understanding of how information quality shapes financial
intermediation, offering practical implications for standard-setters seeking to enhance
the decision-usefulness of financial reporting and for financial institutions aiming to
optimize their credit evaluation protocols. Our cross-disciplinary approach bridges
methodological divides between experimental and archival research traditions, demonstrating how cognitive processes mediate the relationship between information characteristics and economic outcomes.
