We conduct an experiment to examine how lending decisions are affected
by lender perceptions of reporting and governance quality. We perform a set of experiments
to determine whether lenders are sensitive to the quality of governance as measured
by board composition along multiple dimensions, whether their perceptions of
reporting reliability are a function of the strength of the board, and whether their lending
decisions are then affected by their perceptions of reporting reliability. Study participants
are a group of 62 professional lenders from Singapore, with at least three years
of professional credit analysis and lending experience. We find that lenders are primarily
sensitive to financial condition and the perceived reliability of financial reporting.
While we also find that lenders are sensitive to board strength, further tests suggest
lenders appear particularly sensitive to board strength only for relatively highperforming
firms. We also find that the perceived reliability of the financial reports does
not appear to be affected by board strength or by the applicant’s financial condition. The
paper discusses implications for policy making, practice, and research