The Effect of Consolidated Statements on Loan Officers' Assessments of Ability to Repay

The effect of consolidated statements on lenders' assessments of the capacity of members of groups of companies to repay term loans is investigated. Relevant accounting and banking literature is reviewed and a field experiment reported. Results indicate that the relevance of consolidated statements to this task is contingent on whether guarantees have been provided by a parent company, and the degree of default risk reflected by the applicant subsidiary's financial statements.