GAAP goodwill and debt contracting efficiency: evidence from net-worth covenants

We study the role of goodwill in promoting contracting efficiency and the effect of SFAS 141 and 142 on this role. We provide three main results. First, when a lending agreement contains some type of minimum net-worth covenant, the probability of a tangible net-worth covenant is decreasing in the borrower’s goodwill. Second, the use of tangible net-worth covenants has increased since the promulgation of SFAS 141 and 142. Finally, covenant slack is not significantly related to the use of tangible net-worth covenants relative to net-worth covenants. These results suggest that contracting parties realize efficiency gains by permitting borrowers’ actions to be restricted by the value of GAAP goodwill. However, recent changes in GAAP have reduced the contracting usefulness of goodwill.

On the theory of financial contracting: The personal loan market

Assuming rational expectations, the differing incentives of borrowers and lenders in competitive loan markets determine the typically complex nature of personal loan contracts. Given this framework, contractual provisions such as collateralization, escrow accounts, and other restrictive covenants are efficient mechanisms to control the incentive conflict: credit rationing (market failure) arguments are not necessary to explain the inclusion of these contractual provisions. Within a competitive lending market the benefits from these provisions ultimately accrue to the borrower by lowering the total cost of borrowing.     

我与金融信息化的不解之缘

20世纪90年代初,我进入人民银行从事科技工作。从此,我与金融信息化结下了不解之缘。我人生最美好的时光在金融信息化建设事业中度过,我的人生也因此有了崭新的意义。在参与金融信息化建设的过程中,我增加了见识、增长了才干、提高了水平、锻炼了自己。回顾我参与的有代表性的工作,感慨万千。     

Imperfect financial contracting and macroeconomic stability

This paper studies the implications of imperfect financial contracting for macroeconomic stability in the context of a stochastic dynamic general equilibrium model. We find that the equilibrium growth path might be indeterminate in an economy with financing frictions even if the aggregate production function exhibits constant returns to scale. Self-fulfilling expectations about the future price of capital lead to macroeconomic fluctuations in this economy.     

Earnouts: A study of financial contracting in acquisition agreements

We empirically examine earnout contracts, which provide for contingent payments in acquisition agreements. Our analysis reveals considerable heterogeneity in the potential size of the earnout, the performance measure on which the contingent payment is based, the period over which performance is measured, the form of payment for the earnout, and the overall sensitivity of earnout payment to target performance. Our tests of the determinants of contract terms yield support for the view that earnouts are structured to minimize the costs of valuation uncertainty and moral hazard in acquisition negotiations.     

Investor abilities and financial contracting: Evidence from venture capital

Using a large, new database of contractual provisions governing the allocation of cash flow rights in venture capital (VC) financings, we investigate how contract design is related to VC abilities to monitor and provide value-added services to the entrepreneur. We find that more experienced VCs, who have superior abilities and more frequently join the boards of their portfolio companies, obtain weaker downside-protecting contractual cash flow rights than less experienced VCs. Several pieces of evidence suggest that this relation is unlikely to be driven by selection effects. The results suggest that VCs with better governance abilities focus less on obtaining downside protections, which entail risk-sharing costs, and more on other aspects of the contract (such as obtaining board representation) during negotiations with entrepreneurs. The results also imply that previous estimates of the amount entrepreneurs pay for affiliation with high-quality VCs are overstated.     

Determinants of financial covenants and pricing of debt in private debt contracts: the UK evidence

This paper presents details of financial covenants given by a sample drawn from the largest 200 non-financial quoted firms in the UK in private debt contracts and analyses these data to see whether there are relationships between the nature of the covenants given and firm characteristics. Data were obtained from 72 firms, of which 17 gave no financial covenants. Firm size was found to be the only significant factor influencing whether firms did or did not give covenants as well as the only factor which influenced the margin given on debt. Some types of covenants given were found to be different from those found in previous research. In particular, there is greater use of EBITDA as a base for both interest cover and gearing covenants. This shows the importance of cash flow based lending as opposed to asset based lending for general financing for large firms.     

European financial market dependence: An industry analysis

This paper uses a copula model to investigate the degree and determinants of European market dependence across 10 industries in 12 Euro zone and 8 non-Euro zone stock markets during the period 1992–2011. Most of the industries in Euro countries show a dependence increase with the Euro-area after the introduction of the Euro. The effects are strongest in countries with larger market capitalization and in the Financials, Industrials, Consumer Goods, Utilities, Technology and Telecommunications industries. Overall, the export intensity, interest rate sensitivity and competitiveness of an industry and the financial development and economic openness of a country are the most important determinants of changes in equity market dependence. The period around the Lehman collapse also shows higher equity market dependence between European countries, while the lower dependence increase during the period of the recent European sovereign debt crisis suggests that country-specific factors may matter more than before.     

Conservative financial reporting, debt covenants, and the agency costs of debt

Considerable research has documented the role of debt covenants and conservative financial accounting in addressing agency conflicts between lenders and borrowers. Beatty, A., Weber, J., and Yu, J. [2008. Conservatism and debt. Journal of Accounting and Economics, forthcoming] document interesting, but mixed, findings on the relation between debt covenants and conservative accounting, and the extent to which the two contracting mechanisms act as substitutes or complements. In this paper, I discuss the economic roles of financial reporting, debt covenants, and conservatism within the debt contracting environment, and attempt to fit BWY's findings within this context.     

Framing financial responsibility: An analysis of the limitations of accounting

In organisations, accounting—understood broadly as calculative practices—is claimed to serve as a critical vehicle when introducing forms of individual financial responsibility. Whereas most prior accounting research has been preoccupied with asserting this claim, this paper opens an opportunity to examine the limitations of accounting as a technology of responsibilisation. It does so by moving the empirical focus beyond the borders of people's work settings and into the private sphere of everyday life, investigating governmental efforts to turn high school students into financially responsible citizens. The analysis, informed by framing theory, reveals that the efficiency of accounting is conditioned by people's calculative understanding. Hence, in situations where individuals are expected to lack this basic calculative competency, accounting is presumed to be inappropriate as a means of introducing financial responsibility. This has implications for re-considering how the relation between accounting and responsibility is constituted.     

An equilibrium approach to financial stability analysis: the Colombian case

This paper studies in detail the performance of a general equilibrium model of the financial system when applied to the case of Colombia. This model was designed following closely the work by Goodhart et al. (Ann Fin 2, 1–21, 2006b). The results suggest that the model performs satisfactorily, especially in the prediction of short-run trends (2 years). A shortcoming of the results is a slight overestimation of several trends in the medium to long-term. There is however room to progress, particularly in terms of the incorporation of idiosyncratic features of the Colombian financial system into the model.      

Opportunistic financial reporting around municipal bond issues

Understanding how government officials exercise discretion over financial reporting is essential for citizens, regulators, and researchers to interpret and monitor financial performance. I examine two measures of discretion in governmental financial statements: abnormal accruals in full accrual financial statements, and other financing sources and uses in modified accrual financial statements. Using a unique dataset of hand-collected financial data from California, I document empirically that municipal governments pursue a break-even income in both sets of financial statements, and that they focus particularly on avoiding deficits. Further, I find evidence that municipalities employ discretionary accruals but not other financing sources and uses to a greater extent before issuing bonds. Prior to bond issuance, officials facing deficits use less discretion. The results highlight the multidimensional and sometimes conflicting incentives government officials face, and the reporting strategies they use as they weigh the expected costs and benefits of using accounting gimmicks to report favorable bottom lines.     

Accounting standards and value relevance of financial statements: An international analysis

Using 17,743 firm-year observations of industrial companies in 21 countries from 1991 to 1997, this paper finds that the use of accrual accounting (versus cash accounting) negatively affects the value relevance of financial statements in countries with weak shareholder protection. This negative effect, however, does not exist in countries with strong shareholder protection. These findings are consistent with the belief that shareholder protection improves the effectiveness of accrual accounting, and suggest the importance of considering shareholder protection when formulating accounting policies related to accruals.     

Goodwill write-off and financial market behaviour: An analysis of possible relationships

The aim of this contribution is to verify whether there exists a reaction of financial markets to the new accounting method for goodwill introduced by SFAS 142 and IAS 36. Our research hypothesis is that financial markets should have no significant reaction to the goodwill write-off following the impairment test, since the latter's outcome represents an economic estimate without financial significance. The hypothesis was checked by the analysis of the companies added to the Standard & Poor's Europe 350 index over a three-year period, taking note of goodwill write-off announcements and relating them with the stock market prices and their volatility. The results demonstrate a correlation between the goodwill write-off and the behaviour of financial markets, while the same connection cannot be evinced for prices volatility. Also, what comes out from our analysis is that markets need a relatively long period, over one semester, before absorbing in full the effects resulting from the write-off announcement.     

我国金融倾斜的计量检验

就世界各国金融业发展历史而言,一般是先有间接金融,后有直接金融,二者的发展不仅在时间上是不平行的,而且在业务比重上也远不是均衡的,即在相当长的时间内,间接金融的业务总量及市场占有率远大于直接金融,形成"金融倾斜"。但随着非银行金融的发展,直接金融的发展速度加快,在业务规模上接近甚至超过了间接金融,形成"逆向金融倾斜"。本文旨在通过计量间接金融与直接金融的相对比重来揭示我国金融倾斜的动态特征,通过计量间接金融与直接金融对经济发展的贡献度来检验我国金融倾斜的总体效应,并在计量检验的基础上分析我国金融倾斜的内在动因,探寻我国融资结构变迁的客观规律。     

关于我国商业银行参与碳金融市场的思考

全球气候变嗳问题日益严峻使节能减排成为全球经济的热点之一,由此衍生的碳金融问题成为理论与实务界讨论的焦点。我国碳减排资源丰富,发展碳金融后发优势明显,但当前尚面临被动接受国际交易规则、定价能力不足等劣势。我国商业银行应充分发挥自身在金融市场领域的优势,借鉴国际同业经验,加快开发相关金融衍生产品,提高风险识别、计量能力,加强金融支持力度,促进国内碳金融市场的建立健全。     

Audit firm tenure and financial restatements: An analysis of industry specialization and fee effects

This study investigates the relation between audit firm tenure and clients’ financial restatements. Specifically, we extend the audit tenure literature by assessing restatement-based reporting failures using dimensions of auditor expertise and independence previously assumed to underlie short and long audit tenure problems. Short tenure expertise and independence effects are hypothesized using audit firm industry specialization and audit fees as proxies. Long tenure independence effects are hypothesized using nonaudit fees as a proxy. Using matched-sample logistic regression and 382 companies with and without financial restatements during 2000–2004, the results support prior findings by indicating a negative relation between the length of the auditor–client relationship and the likelihood of restatement. For short tenure engagements, we find that auditor industry specialization and audit fees are negatively related to the likelihood of restatement. This result is consistent with concerns about reduced audit quality due to a lack of client-specific knowledge and low audit fees on new audit engagements. Alternatively, the long tenure results indicate an insignificant relation between nonaudit fees and the likelihood of restatement. This finding contradicts independence concerns about nonaudit fees paid to entrenched auditors.     

经营财务分析报告贵在有效

本文作者是ACCA会员,他提出国内公司财务分析系统普遍存在对公司投资者关系管理支持缺位的问题,进而以上市公司为例从财务分析系统的定位、管理决策支持有效性和公司价值创造的实现途径角度结合笔者的实务经验提出问题的解决思路     

An empirical analysis of the determinants and pricing of corporate bond clawbacks

This paper presents empirical analysis of the factors that affect a firm's decision to use a clawback provision in debt and the yield impact of including the clawback provision. The results show that relatively smaller firms with low credit rating and low profitability favor the usage of clawback provisions. We also find that debt with clawback provisions have the highest yield spread followed by callable bonds and straight debt. Convertible bonds that offer investors the option to convert to equity have lower yield spread. This implies that issuers can trade off flexibility for higher interest cost and that the clawback feature may be a significant financial innovation which reduces information asymmetry and creates an entry point for small firms to gain access to the public bond markets.     

The response of the external finance premium in Asian corporate bond markets to financial characteristics,financial constraints and two financial crises

Empirical investigation of the external finance premium has been conducted on the margin between internal finance and bank borrowing or equities but little attention has been given to corporate bonds, especially for the emerging Asian market. In this paper, we hypothesize that balance sheet indicators of creditworthiness could affect the external finance premium for bonds as they do for premia in other markets. Using bond-specific and firm-specific data for China, Hong Kong, Indonesia, Korea, Philippines, Singapore and Thailand during 1995–2009 we find that firms with better financial health face lower external finance premia in all countries. When we introduce firm-level heterogeneity, we show that financial variables appear to be both statistically and quantitatively more important for financially constrained firms. Finally, when we examine the effects of the 1997–1998 Asian crisis and the 2007–2009 global financial crisis, we find that the sensitivity of the premium is greater for constrained firms during the Asian crisis compared to other times.