Mandated Accounting Changes and Debt Contracts
Author: Mary Beth Mohrman
Publisher:
Published: 1991
Total Pages: 150
ISBN-13:
DOWNLOAD EBOOKPosts
The Importance of Accounting Changes in Debt Contracts
Author: Anne Beatty
Publisher:
Published: 2002
Total Pages:
ISBN-13:
DOWNLOAD EBOOKIn this paper we examine how the exclusion of voluntary and mandatory accounting changes from the calculation of covenant compliance affects the interest rate charged on the loan. After controlling for self-selection bias and other factors known to affect loan spreads, we find that the rate charged is 84 basis points lower when voluntary accounting changes are excluded and 71 basis points lower when mandatory accounting changes are excluded. Our results suggest that borrowers are willing to pay substantially higher interest rates to retain accounting flexibility that may help them avoid covenant violations and to avoid duplicate record keeping costs.
The Importance of Excluding Accounting Changes from the Calculation of Debt Covenant Compliance
Author: Anne Beatty
Publisher:
Published: 2001
Total Pages: 31
ISBN-13:
DOWNLOAD EBOOKIn this paper we examine the ex-ante importance of accounting changes in debt contracts by examining how the exclusion of the flexibility to make voluntary and mandatory accounting changes from the calculation of covenant compliance affects the interest rate charged on the loan. After controlling for a selectivity correction and other factors known to affect loan spreads, we find that the interest rate charged on a loan is 40 basis points lower when mandatory accounting changes are excluded and is 104 basis points lower when voluntary accounting changes are excluded. Our results support findings in previous studies that accounting changes are important in debt contracts ex-post for borrowers who violate their accounting based covenants.
Impact of Mandatory Changes in Convertible Debt Accounting
Author: Na Li
Publisher:
Published: 2014
Total Pages:
ISBN-13:
DOWNLOAD EBOOKCapital Restructuring in Response to Mandatory Accounting Changes
Author:
Publisher:
Published: 2010
Total Pages:
ISBN-13:
DOWNLOAD EBOOKContractibility and Transparency of Financial Statement Information Prepared Under IFRS
Author: Ray Ball
Publisher:
Published: 2015
Total Pages: 69
ISBN-13:
DOWNLOAD EBOOKA significant reduction in accounting-based debt covenants follows mandatory IFRS adoption, consistent with reduced contractibility of accounting information. We describe several properties of IFRS that could reduce contractibility, including increased flexibility given managers when selecting among and applying accounting rules, increased rule-making uncertainty, and increased emphasis on fair value accounting. The reduction in accounting covenant use is associated with measures of the difference between prior domestic standards and IFRS, defined in terms of both general and fair value accounting standards. Because IFRS adoption changed financial reporting in many ways simultaneously, it is difficult to trace the decline in accounting covenant use to individual IFRS properties, though we report larger declines in accounting covenant use in banks, which have a higher proportion of assets and liabilities that are fair-valued. Overall, IFRS rules appear to sacrifice debt contracting usefulness for objectives such as complying with an accounting measurement model focused on valuation uses.
Internet Appendix to 'Contractibility and Transparency of Financial Statement Information Prepared Under IFRS
Author: Ray Ball
Publisher:
Published: 2017
Total Pages: 66
ISBN-13:
DOWNLOAD EBOOKA significant reduction in accounting-based debt covenants follows mandatory IFRS adoption, consistent with reduced contractibility of accounting information. We describe several properties of IFRS that could reduce contractibility, including increased flexibility given managers when selecting among and applying accounting rules, increased rule-making uncertainty, and increased emphasis on fair value accounting. The reduction in accounting covenant use is associated with measures of the difference between prior domestic standards and IFRS, defined in terms of both general and fair value accounting standards. Because IFRS adoption changed financial reporting in many ways simultaneously, it is difficult to trace the decline in accounting covenant use to individual IFRS properties, though we report larger declines in accounting covenant use in banks, which have a higher proportion of assets and liabilities that are fair-valued. Overall, IFRS rules appear to sacrifice debt contracting usefulness for objectives such as complying with an accounting measurement model focused on valuation uses.
Accounting for Decision Making and Control
Author: Jerold L. Zimmerman
Publisher:
Published: 2009
Total Pages: 733
ISBN-13: 9780071283700
DOWNLOAD EBOOKAccounting for Decision Making and Control provides students and managers with an understanding and appreciation of the strengths and limitations of an organization’s accounting system which allows them to be more intelligent users of these systems. The 6th edition provides a framework for thinking about accounting systems and a basis for analyzing proposed changes to these systems. The text demonstrates that managerial accounting is an integral part of the firm’s organizational architecture, not just an isolated set of computational topics. This new edition has improved its readability and accessibility to students.
The Importance of Accounting Discretion in Mandatory Accounting Changes
Author: Anne Beatty
Publisher:
Published: 2005
Total Pages: 52
ISBN-13:
DOWNLOAD EBOOKThis study examines SFAS 142 adoption decisions focusing on the trade-off between recording certain current goodwill impairment charges below-the-line versus uncertain future impairment charges included in income from continuing operations. We examine several potentially important economic incentives that firms face when making this accounting choice. We find evidence suggesting that firms' asset pricing considerations affect their preference for above-the-line vs. below-the-line accounting treatment, and firms' debt contracting, bonus, turnover and exchange delisting incentives affect their decisions to accelerate or delay expense recognition. We also examine the disclosures of the method used to calculate fair values and provide preliminary evidence that the extent of disclosure is associated with the accounting choices made when adopting SFAS 142. Our study contributes to the accounting choice literature by examining the manager's use of discretion when adopting a mandatory accounting change and by developing and testing explicit cross-sectional hypotheses of the determinants of firm's preferences for immediate below-the-line versus delayed above-the-line expense recognition.
Does Recognition Versus Disclosure Affect Debt Contract Design? Evidence from SFAS 158
Author: John Donovan
Publisher:
Published: 2019
Total Pages: 49
ISBN-13:
DOWNLOAD EBOOKWe study how recognition versus disclosure affects the control function of accounting through the use of debt covenants. While research shows that recognition affects the value-relevance of reported amounts, the effect on contracting is unclear. We examine whether covenants changed around SFAS 158 adoption, which required recognition of previously disclosed pension liabilities. We find that pension underfunding is negatively associated with the use of capital (i.e., balance sheet) covenants prior to recognition. Post-SFAS 158, pension underfunding is associated with a higher likelihood of using capital covenants relative to the pre-period. We find no evidence that SFAS 158 alters the use of income statement covenants. Additional analysis suggests a decrease in cost of debt with no corresponding change in credit risk. Collectively, the evidence suggests that recognition enables more effective allocation of control through the use of covenants because financial statements better represent the financial condition of the borrower.
