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The Role of Covenants in Public and Private Debt
SSRN Electronic Journal, 2009Covenants are particular clauses in debt contracts of firms that restrict business policy, giving creditors the possibility of putting precise actions into force - normally early repayment - when the covenants are violated. We refer to the Agency Theory of Covenant (ATC), which assumes that as long as the offsetting benefits exceeds the costs of the ...
Bazzana, Flavio, Broccardo, Eleonora
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2022
Relationships between lenders and borrowers that emerge from debt contracts, hold potential for conflicts among the involved parties. Debt covenants are agreements in the debt contract that offer a mechanism to mitigate these conflicts which originate in agency problems and informational asymmetries. They aim to restrict managerial behaviour by setting
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Relationships between lenders and borrowers that emerge from debt contracts, hold potential for conflicts among the involved parties. Debt covenants are agreements in the debt contract that offer a mechanism to mitigate these conflicts which originate in agency problems and informational asymmetries. They aim to restrict managerial behaviour by setting
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Financial reporting, debt covenants and convertible debts
Asian Review of Accounting, 2022PurposeThis study proposes an alternative perspective on why firms issue convertible debt, to supplement the largely theoretical motives identified in the existing literature. It hypothesises that the separate presentation of convertible debt into its equity and liability components has economic consequences and advantage that explain why firms issue ...
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The covenant threshold in public and private debt
Banca Impresa Società, 2013A covenant is a particular clause in a firm's debt contract that restricts the firm'soptions and provides creditors with the right to enforce certain actions (e.g., earlyrepayment) if the covenant is violated. According to the agency theory of covenants,if the benefits of implementing a covenant exceed the costs, then lenders will includecovenants in ...
Bazzana, Flavio, Broccardo, Eleonora
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Uncertainty and Debt Covenants
SSRN Electronic Journal, 2012I examine the use of financial covenants when contracting for debt under uncertainty. Uncertainty, in the context of this study, is a lack of information about the borrower's future value. I examine the implications of ex-ante uncertainty that is resolved by information received following loan initiation but prior to maturity. Under such circumstances,
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Debt Covenants, Agency Costs and Debt Maturity
SSRN Electronic Journal, 2009Corporate debt maturity is a concave function of financial leverage when the debt has restrictive asset-based covenants attached. This concavity kicks in earlier with increasing covenant tightness and is absent when firms have no restrictive asset-based covenants.
Jamie Alcock +2 more
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Debt Covenants and Accounting Manipulation
The Accounting Review, 2021ABSTRACT This paper studies the effects of allocating control rights to lenders via debt covenants when managers can sometimes misreport the accounting information on which the covenants are based. When contract renegotiation is exogenously prohibited, including a covenant in the contract is ex ante optimal because it increases both the ...
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The Costs of Debt Contracts and the Repeated Use of Debt Covenants
Asia-Pacific Journal of Financial Studies, 2009Abstract I examine the tendency to repeatedly use the same financial covenant in debt contracts and the economic determinants of such repeated use. Using the Dealscan database, I find a tendency to repeatedly use the same financial covenant.
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Debt Covenants and Risk-Taking
SSRN Electronic Journal, 2015We examine a comprehensive set of debt contracts that have different types of covenants and performance pricing provisions to determine how these contractual features relate to borrowers’ risk-taking decisions. We predict and find that the relation between covenants and operating risk depends on the type of contractual provision: covenants that ...
Chris Armstrong +2 more
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The Structure of Bank Debt Covenants
SSRN Electronic Journal, 1999This paper identifies the sources of conflicts between debtholders and stockholders in commercial banks, considering the potential influence of bank deposit insurance and regulations restricting bank capital ratios, merger activities, and dividend payments.
Ervin L. Black, Susan E. Shevlin
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