Debt Covenant Restriction,Financial Misreporting,and Auditor Monitoring*

Theory suggests that financial report-based debt covenants engender incentives for the manager to relax covenant constraints through accounting choices in order to avoid costly covenant violations. Prior studies directly testing this hypothesis in the context of financial misreporting fail to find consistent evidence. Using a more refined measure of debt covenant restriction, we find that debt covenant restriction is positively associated with the probability of financial statement misstatements. This positive association is driven by performance covenants rather than capital covenants and is more consistent with the manager striving to avoid a “false-positive” violation than to delay the violation. Our results also imply that managers resort to both income-increasing and non–income-increasing misreporting to relieve covenant constraints and rely more on the latter when faced with greater earnings management constraints. Additionally, the auditor charges higher audit fees to firms with more binding covenants even outside the violation state, and audit fees increase with constraints relative to both performance and capital covenants, reflecting greater financial reporting risk and bankruptcy risk, respectively. Within capital covenants, we find some evidence of even higher audit fees for tighter intangible-inclusive versus intangible-exclusive capital covenants. Lastly, our evidence suggests that the positive association between covenant constraints and misreporting is attenuated when the auditor has more experience with debt covenants, has greater bargaining power over the client, or faces greater litigation risk.     

Relevance of culture in studies of leadership: ignored or dismissed?

Asia Pacific Journal of Management - Until recently, conclusions drawn about leadership have been made from a decidedly Western perspective, primarily based on theory developed in the U.S. using...     

Major bleeding risk and healthcare economic outcomes of non-valvular atrial fibrillation patients newly-initiated with oral anticoagulant therapy in the real-world setting

Aims: This study compared the risk for major bleeding (MB) and healthcare economic outcomes of patients with non-valvular atrial fibrillation (NVAF) after initiating treatment with apixaban vs rivaroxaban, dabigatran, or warfarin.

Methods: NVAF patients who initiated apixaban, rivaroxaban, dabigatran, or warfarin were identified from the IMS Pharmetrics Plus database (January 1, 2013–September 30, 2015). Propensity score matching (PSM) was used to balance differences in patient characteristics between study cohorts: patients treated with apixaban vs rivaroxaban, apixaban vs dabigatran, and apixaban vs warfarin. Risk of hospitalization and healthcare costs (all-cause and MB-related) were compared between matched cohorts during the follow-up.

Results: During the follow-up, risks for all-cause (hazard ratio [HR]?=?1.44, 95% confidence interval [CI]?=?1.2–1.7) and MB-related (HR?=?1.57, 95% CI?=?1.0–2.4) hospitalizations were significantly greater for patients treated with rivaroxaban vs apixaban. Adjusted total all-cause healthcare costs were significantly lower for patients treated with apixaban vs rivaroxaban ($3,950 vs $4,333 per patient per month [PPPM], p?=?.002) and MB-related medical costs were not statistically significantly different ($100 vs $233 PPPM, p?=?.096). Risk for all-cause hospitalization (HR?=?1.98, 95% CI?=?1.6–2.4) was significantly greater for patients treated with dabigatran vs apixaban, although total all-cause healthcare costs were not statistically different. Risks for all-cause (HR?=?2.22, 95% CI?=?1.9–2.5) and MB-related (HR?=?2.05, 95% CI?=?1.4–3.0) hospitalizations were significantly greater for patients treated with warfarin vs apixaban. Total all-cause healthcare costs ($3,919 vs $4,177 PPPM, p?=?.025) and MB-related medical costs ($96 vs $212 PPPM, p?=?.026) were significantly lower for patients treated with apixaban vs warfarin.

Limitations: This retrospective database analysis does not establish causation.

Conclusions: In the real-world setting, compared with rivaroxaban and warfarin, apixaban is associated with reduced risk of hospitalization and lower healthcare costs. Compared with dabigatran, apixaban is associated with lower risk of hospitalizations.     

Viewpoint: Estimating the causal effects of policies and programs

Estimation, inference and interpretation of the causal effects of programs and policies have all advanced dramatically over the past 25 years. We highlight three particularly important intellectual trends: an improved appreciation of the substantive importance of heterogeneous responses and of their methodological implications, a stronger focus on internal validity brought about by the “credibility revolution,” and the scientific value that follows from grounding estimation and interpretation in economic theory. We discuss a menu of commonly employed partial equilibrium approaches to the identification of causal effects, emphasizing that the researcher's central intellectual contribution always consists of making an explicit case for a specific causal interpretation given the relevant economic theory, the data, the institutional context and the economic question of interest. We also touch on the importance of general equilibrium effects and full cost–benefit analyses.     

Bundling attractions for rural tourism development

Tourism is often regarded as a viable solution to economic crisis, especially for remote areas without many development options. While many tourism destinations have strong cultural or heritage assets, not all destinations have primary attractions that can bring visitors to the region. Rather than developing special interest “themes”, rural areas that do not have enough of any one type of tourism resource to act as a primary draw may consider bundling different attraction types to increase visitation. The purpose of this study is to investigate the preferences of visitors to secondary heritage sites and explore the relationship between heritage tourism and alternative, non-heritage activities in rural areas. Findings revealed that motivation to visit small-scale heritage sites consisted of two dimensions: learning and recreation. The two motivational dimensions influenced visitors’ interest in different heritage attractions and likelihood of visiting heritage tourism “scenarios”. As for alternative activities, there was a cluster of “popular” activities that were enjoyed by both learning-oriented and recreation-oriented respondents, but recreation-oriented visitors were more interested in nature-based activities and sport-related activities than learning-oriented visitors. Findings can help rural communities improve secondary attractions and diversify their tourism product by bundling heritage attractions with non-heritage activities.     

Reducing tourism's threats to biodiversity: effects of a voluntary sustainability standard and training program on 106 Latin American hotels,lodges and guesthouses

The tourism industry can negatively affect wildlife, plants and natural ecosystems through habitat destruction, pollution, over-exploitation of natural resources and visitor impacts to sensitive ecosystems. One approach to mitigate such threats is the application of voluntary sustainability standards, supported by training of tourism enterprises and verified by external audits. The Rainforest Alliance standard defines 78 criteria (requirements) for sustainable environmental, social and business practices, and has been adopted by over 600 tourism enterprises – including hotels, lodges and tour boats – in 12 countries. We examined the performance of 106 hotels in six Latin American countries against 29 of the sustainable tourism criteria most directly related to biodiversity conservation. Independent audits were used to assess hotel performance at baseline followed by a repeat assessment after training, about two years later. Mean conformance with the 29 biodiversity criteria increased significantly during this interval, from 44% to 58%. Improvements were greatest for businesses in the lowest third of performance at baseline (laggards) and smallest for hotels in the highest third (leaders). The results indicate that a voluntary sustainability standard and training program can serve both to recognize existing good actors and to drive incremental improvement in enterprises that were previously less sustainable.