The Role of Audit Verification in Debt Contracting: Evidence from Covenant Violations

2016 ◽  
Author(s):  
Liangliang Jiang ◽  
Hui Zhou
Keyword(s):  
Debt Contracting ◽  
Covenant Violations

Accounting Conservatism and Firm Growth Financed by External Debt

2016 ◽  
Vol 32 (2) ◽  
pp. 182-208 ◽  
Author(s):  
Tony Kang ◽  
Gerald J. Lobo ◽  
Michael C. Wolfe
Keyword(s):  
Firm Growth ◽  
Positive Relationship ◽  
External Debt ◽  
Debt Maturity ◽  
Accounting Conservatism ◽  
Debt Contracting ◽  
Conservative Accounting ◽  
Agency Risk

Previous research shows that accounting conservatism facilitates debt contracting. Extending this line of literature, we examine whether the role of accounting conservatism in accessing external debt to attain firm growth varies with its maturity. We find evidence of a positive relationship between conservatism and debt maturity. We also observe a positive relationship between conservative accounting and future growth funded by all classes of debt, but this relation is due to long-term rather than short-term debt, which is less prone to agency risk. Furthermore, the associations between conservatism and debt maturity and conservatism and growth financed by long-term debt are mostly observed for firms with fewer anti-takeover provisions in place. These findings suggest that the demand for accounting conservatism is not uniform across different debt maturity horizons.

The information role of audit opinions in debt contracting

2016 ◽  
Vol 61 (1) ◽  
pp. 121-144 ◽  
Author(s):  
Peter F. Chen ◽  
Shaohua He ◽  
Zhiming Ma ◽  
Derrald Stice
Keyword(s):  
Debt Contracting ◽  
Audit Opinions

The Role of Accounting Information in Optimal Debt Contracts with Informed Lenders

2018 ◽  
Vol 94 (6) ◽  
pp. 165-200 ◽  
Author(s):  
Masako N. Darrough ◽  
Mingcherng Deng
Keyword(s):  
Private Information ◽  
Investment Decision ◽  
Accounting Information ◽  
Investment Efficiency ◽  
Debt Contracts ◽  
Debt Contracting ◽  
Lending Relationships ◽  
Debt Contract ◽  
Ex Post

ABSTRACT We analyze the role of accounting information in debt contracting when the lender has private information that can assist in the borrower's investment decision. The lender might have acquired private information during the due diligence process or via past lending relationships. We show that the borrower has a stronger incentive to engage in a suboptimal investment decision (i.e., asset substitution) ex post when the lender lacks incentive to truthfully reveal this information. We identify conditions under which, ex ante, the borrower can incorporate accounting signals in the debt contract to mitigate the effect of the lender's private information and improve the borrower's investment efficiency. Our analysis offers an alternative explanation for the use of performance pricing in debt contracts. JEL Classifications: G21; G32; M41; M48.

Sign in / Sign up

Export Citation Format

Share Document