Financial Covenants and Related Contracting Processes in the Australian Private Debt Market
Financial Covenants and Related Contracting Processes in the Australian Private Debt Market

Author: Paul R. Mather

Publisher:

Published: 2000

Total Pages:

ISBN-13:

DOWNLOAD EBOOK

Private debt markets are characterised by covenant restrictive but renegotiation-flexible debt contracts as financial intermediaries lending in private debt markets have a comparative advantage over investors in public debt markets in offering such contracts. The two research questions investigated in this paper are quot;Whether several borrower-and contract-specific variables determine the restrictiveness of financial covenants in private debt contracts?quot; and quot;Whether several borrower-and contract-specific variables are associated with loan officers decisions to waive technical default on financial covenants?quot; Two behavioural experiments involving loan officers examined these contracting processes in the Australian private debt market. The first experiment examined whether certain variables determine the restrictiveness of financial covenants in private debt contracts. Management reputation and security were found to be associated with the number and tightness of financial covenants, whilst high financial risk was associated with increased tightness, but not the number, of such covenants. The effect of the interaction, management reputation x security, was also significant. The second experiment examined the association between certain variables and the likelihood of loan officers waiving technical default on financial covenants. Low financial risk, security and defaults caused solely by a change in accounting standards were found to be associated with the likelihood of the default being waived. These are the first behavioural experiments examining these debt contracting processes reported in the literature and the paper contributes in several ways. First, the methodology allows comparisons with findings of prior research from a new perspective. Second, the methodology enabled the investigation of the effect of management reputation on the restrictiveness of covenants: an important addition to the literature given its prominence in professional banking writings. Third, the experimental setting facilitated controlling the investment opportunity set when studying the responses to technical default thereby overcoming a limitation of the main prior study in this area (Chen and Wei, 1993).

Accounting and Non-Accounting Based Information in the Market for Debt
Accounting and Non-Accounting Based Information in the Market for Debt

Author: Ian Ramsay

Publisher:

Published: 2006

Total Pages: 25

ISBN-13:

DOWNLOAD EBOOK

This paper examines accounting and non-accounting based restrictive covenants in Australian private debt agreements. With respect to the former, our findings differ from previous research on public debt. We find more varied definitions of constraints and their specific tightness in private debt contracts than in public debt contracts. Further, limits on interest cover are found to be continuing constraints and not 'once-off' limits. The paper reports frequent use of more specific or 'tailored' accounting based constraints and the frequent inclusion of off-balance sheet numbers in the measurement rules specified.The paper also provides the first Australian evidence on the use of non-accounting based constraints. These are pervasive and cover a wide range of corporate activity. While largely consistent with previous research the paper also reports evidence of restrictions previously argued to be sub-optimal and hence, unlikely to be observed. Specifically, there are frequent restrictions on firms' production and investment policies.

Measuring the Probability of Financial Covenant Violation in Private Debt Contracts
Measuring the Probability of Financial Covenant Violation in Private Debt Contracts

Author: Peter R. Demerjian

Publisher:

Published: 2015

Total Pages: 41

ISBN-13:

DOWNLOAD EBOOK

We measure the probability that a borrower will violate financial covenants in private debt contracts. We analyze hand-coded data and specify standard covenant definitions using Compustat data that minimize measurement error for all individual Dealscan covenants. We use these definitions to create a measure of aggregate probability of violation, which can be used across all covenants in a loan or among covenant subsets of interest. We provide evidence that our aggregate probability measure is superior to alternatives used in prior literature.

Accounting and Regulation
Accounting and Regulation

Author: Roberto Di Pietra

Publisher: Springer Science & Business Media

Published: 2013-11-05

Total Pages: 424

ISBN-13: 1461480973

DOWNLOAD EBOOK

Since 1998, the world’s leading experts on accounting and regulation have convened in a series of workshops to explore and analyze emerging issues in the field. They have covered a wide array of topics, including corporate governance, auditing, financial disclosure, international standards boards, and the dynamics of markets and institutions. Most recently, they have focused on the role that accounting practices and policies may have played in the global financial crisis of 2008. In this volume, the editors showcase contributions from the workshops that represent the full spectrum of issues and perspectives relating to accounting and regulation. Each paper incorporates the most current examples and references to reflect the latest insights, with an emphasis on exploring future implications for theory and research, practice, and policymaking. ​

Financial Accounting and Equity Markets
Financial Accounting and Equity Markets

Author: Philip Brown

Publisher: Routledge

Published: 2013-06-19

Total Pages: 443

ISBN-13: 1135077584

DOWNLOAD EBOOK

Philip Brown is one of the most admired and respected accounting academics alive today. He was a pioneer in capital markets research in accounting, and his 1968 article, co-authored with Ray Ball, "An Empirical Evaluation of Accounting Income Numbers," arguably had a greater impact on the course of accounting research, directly and indirectly, than any other article during the second half of the twentieth century. Since that time, his innovative research has focused on issues that bridge accounting and finance, including the relationships between net profit reports and the stock market, the long-run performance of acquiring firms, statutory sanctions and voluntary corporate disclosure, and the politics and future of national accounting standards to name a few. This volume brings together the greatest hits of Brown’s career, including several articles that were published in out-of-the-way places, for easier use by students and researchers in the field. With a foreword written by Stephen A. Zeff, and an introduction that discusses the evolution of Brown’s research interests and explains the context for each of the essays included in the volume, this book offers the reader a unique look inside this remarkable 50-year career.