Conservative financial reporting, debt covenants, and the agency costs of debt
نویسندگان
چکیده
منابع مشابه
Debt Covenants , Expected Default Costs , and the Implicit Cost of Financial Reporting Manipulation ∗
The transfer of control rights to lenders makes debt covenant violations costly to equityholders and managers, and provides managers with an incentive to manipulate covenant ratios and amounts. We find that the information contained in changes in the probability of covenant violations is priced by the stock market, incremental to changes in firm fundamentals. This relation is stronger when firm...
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We examine the relation between financial accounting characteristics and accountingbased debt covenants. We hypothesize that use of accounting-based covenants is more likely when asymmetric timeliness is higher and accounting discretion is reduced, because the covenants can more efficiently reduce agency costs in these circumstances. Overall, we find little association between the use of accoun...
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How valuable are restrictive debt covenants in reducing the agency costs of debt? I answer this question by exploiting the revealed preference decision to refinance fixed-coupon debt, which weighs observable interest rate savings against the unobservable costs of a change in restrictive debt covenants induced by refinancing. Plausibly exogenous variation in this trade-off reveals that firms req...
متن کاملAccounting Quality, Debt Covenants Design, and the Cost of Debt
We examine whether the presence of alternative debt covenant designs (threshold tightness, covenants frequency and covenant interdependence) reduces the adverse effect of poor accounting quality on debt cost in the private lending market. Our results indicate that when lenders face borrowing firms characterized by low accounting quality (hereafter, low quality borrowers), the lender tends to in...
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ژورنال
عنوان ژورنال: Journal of Accounting and Economics
سال: 2008
ISSN: 0165-4101
DOI: 10.1016/j.jacceco.2008.05.001