Costs of Performance Pricing Loans

2011 ◽  
Author(s):  
Yan Hu ◽  
Connie X. Mao ◽  
Lalitha Naveen
Keyword(s):  
Performance Pricing

Diagnoses

1988 ◽  
Vol 13 (3) ◽  
pp. 64-72
Keyword(s):  
Resource Allocation ◽  
Poor Performance ◽  
State Intervention ◽  
Import Duty ◽  
Pricing Policies ◽  
Performance Pricing ◽  
Main Input ◽  
High Level ◽  
The Cost ◽  
Case Data

The diagnostic case, BTR Ltd., Rampur, UP, raised many questions such as reasons for BTR's poor performance, pricing policies of the Consortium of producers of which BTR was a member, and the implications of state intervention in pricing and allocation of resin, the main input. In this Diagnoses feature, experts from both practising and academic worlds examine these and other questions. Vederah, Dholakia, and Sandesara argue, based on the analysis of case data, that the relatively poor performance of BTR has more to do with its own inefficiency than with the rosin prices fixed by the Consortium. They suggest the areas where BTR should improve its performance and comment on how the Consortium could strengthen and redefine its role. Gurdev Singh develops a framework for evaluating state intervention and applies it to the various stages of resin processing. Vederah's comparison of the cost of imported and indigenous rosin shows how neglected the interests of the users are. The high level of protective import duty and the inadequacy of resource allocation for improvement of production and productivity point to the need for coordinated strategies that take account of both producers and users.

The Effects of Debt Contracting on Voluntary Accounting Method Changes

2003 ◽  
Vol 78 (1) ◽  
pp. 119-142 ◽  
Author(s):  
Anne Beatty ◽  
Joseph Weber
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Bank Debt ◽  
Accounting Choice ◽  
Debt Contracts ◽  
Debt Contracting ◽  
Dividend Payment ◽  
Debt Contract ◽  
Performance Pricing ◽  
The Interest Rate

This study examines whether the provisions of a firm's bank debt contracts affect its accounting choices. Starting with a sample of firms who have bank debt and who also voluntarily changed accounting methods, we investigate whether the likelihood that the change in accounting method increased (rather than decreased) the borrower's income depends on (1) whether the change in accounting method affects the bank debt contract calculations, (2) the expected costs of violating the bank debt covenants, (3) whether performance pricing provisions affect the interest rate on the loan, and (4) whether the bank debt contract contains accounting-based dividend restrictions. After controlling for other motives for changing accounting methods, we find that borrowers whose bank debt contracts allow accounting method changes to affect contact calculations are more likely to make income-increasing rather than income-decreasing changes. This increase in likelihood of an income-increasing change is attenuated when expected costs of technical violation are lower because there is a single lender, and occurs for borrowers whose debt contacts have performance pricing and dividend restrictions. These results suggest that incentives to lower interest rates through performance pricing or to retain dividend payment flexibility influence borrowers' accounting method choices, thereby addressing the fundamental questions posed by Fields et al. (2001) of whether, under what circumstances, and how accounting choice matters.

Syndicate Size and the Choice of Covenants in Debt Contracts

2018 ◽  
Vol 93 (6) ◽  
pp. 301-329 ◽  
Author(s):  
Daniel Saavedra
Keyword(s):  
Capital Expenditure ◽  
Accounting Information ◽  
Relationship Lending ◽  
Debt Contracts ◽  
Corporate Policies ◽  
Performance Pricing ◽  
The World ◽  
Jel Classifications

ABSTRACT I investigate whether and how syndicate size influences the type of covenants used in debt contracts. Prior theory and evidence suggest renegotiation considerations from coordination difficulties in large syndicates and intertemporal transfers due to relationship lending in small syndicates are factors in the design of covenants. I find that for large syndicates, borrowers and lenders avoid the use of flexibility-reducing covenants that are more likely to impact negatively on value-enhancing corporate policies in good states of the world. This effect becomes stronger when the borrower has fewer outside financing options. Additionally, I find contracts with large syndicates are more likely to have more covenant slack, include performance pricing provisions, have tailored capital expenditure covenants, and principally rely on covenants that are directly linked to the current performance of the borrower. Collectively, these results imply that syndicate size and related renegotiation considerations affect how accounting information is used in debt contracts. JEL Classifications: G32; G21; C78; L14.

scholarly journals Corporate boards and performance pricing in private debt contracts

2018 ◽  
Vol 50 ◽  
pp. 144-162 ◽  
Author(s):  
Intan Suryani Abu Bakar ◽  
Arifur Khan ◽  
Paul Mather ◽  
George Tanewski
Keyword(s):  
Corporate Boards ◽  
Debt Contracts ◽  
Private Debt ◽  
Performance Pricing ◽  
And Performance

scholarly journals Negative Hedging: Performance-Sensitive Debt and CEOs’ Equity Incentives

2011 ◽  
Vol 46 (3) ◽  
pp. 657-686 ◽  
Author(s):  
Alexei Tchistyi ◽  
David Yermack ◽  
Hayong Yun
Keyword(s):  
Chief Executive Officers ◽  
Financial Distress ◽  
Financial Risk ◽  
Chief Executive ◽  
Debt Contracts ◽  
Stock Volatility ◽  
Equity Incentives ◽  
Performance Pricing ◽  
Executive Officers ◽  
Interest Payments

AbstractWe examine the relation between chief executive officers’ equity incentives and their use of performance-sensitive debt contracts. These contracts require higher or lower interest payments when the borrower’s performance deteriorates or improves, thereby increasing expected costs of financial distress while making a firm riskier to the benefit of option holders. We find that managers whose compensation is more sensitive to stock volatility choose steeper and more convex performance pricing schedules, while those with high delta incentives choose flatter, less convex pricing schedules. Performance pricing contracts therefore seem to provide a channel for managers to increase firms’ financial risk to gain private benefits.

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