What do we know about the role of financial reporting in debt contracting and debt covenants?

The paper examines the role of financial reporting in debt contracting and in particular focuses on the definition, measurement, and monitoring of accounting-based covenants used to manage agency relationships arising from borrowing by firms. The paper also reviews research in areas of financial reporting where the presence of accounting-based covenants provides incentives to managers, notably choice of accounting method, lobbying on standard setters' proposals, and accounting earnings management. Although US dominated and latterly increasingly focused on large datasets and quantitative and analytical methods, relevant research is available from a range of methodologies and countries and the paper reflects this variety and identifies both inter-jurisdictional differences and inter-temporal changes in debt contracting practices. Despite the extensive research which is reviewed important areas for new research remain.     

The impact of financial reporting quality on debt maturity: the case of private firms

We examine whether the debt maturity structure of privately held firms is associated with the quality of their earnings numbers. We argue that earnings numbers that are better able to predict future cash flows lower information asymmetry between privately held firms and their creditors, improving privately held firms’ access to long-term debt. Furthermore, we examine whether the relationship between privately held firms’ earnings quality and their debt maturity differs between small and medium-sized enterprises (SMEs) and larger privately held firms. Using detailed financial statement information from a sample of privately held Belgian firms, we find that earnings quality is positively associated with the likelihood of having long-term debt and with the proportion of long-term debt in total debt. Further, we report evidence that these associations are more pronounced for SMEs than for larger privately held firms, which is consistent with smaller firms entailing more fundamental risk for creditors.     

Incomplete contracts,renegotiation, and the choice between bank loans and public debt issues

In a two-period model where an investment project is funded with standard debt, the probability distribution of final cash flow is determined, at the interim date, by an unverifiable state of nature together with a choice by the controlling party (entrepreneur or creditor). With a control allocation contingent on a noisy default signal, renegotiation may improve efficiency in two ways: (i) reduce excessive risk-taking – due to the entrepreneur's moral hazard – through debt forgiveness; (ii) avoid the costs of financial distress associated with excessive liquidation or underinvestment by debt-holders, by letting them receive an equity stake in the firm. Such efficiency gain is an advantage of bank loans over publicly traded debt, given that the former are more easily renegotiated than the latter. The difference between the two types of debt is increasing in the degree of contractual incompleteness (noise present in the default signal) and in the portion of project value accounted for by future discretionary investment options.     

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.     

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.     

The day after: newly-elected politicians and the use of accounting information

Most democracies expect accounting information to be used by public managers and elected politicians to support decision-making and accountability to both the public and higher levels of government. This paper shows that Italian local government politicians also use accounting information to influence public opinion and to win political benefit after elections when there has been a change in the ruling party.     

The Banking Sector,Government Bonds,and Financial Intermediation: The Case of Emerging Market Countries

This paper develops an analytical framework to explore how financial-sector characteristics shape the terms and the scale of public borrowing in emerging market economies. We find that the more competitive the banking sector and the more liquid and deeper the deposit market, the better are conditions in the public securities market. We also show that the greater the central bank independence, the higher the cost of public borrowing. Furthermore, our results suggest that, in countries where banks rely significantly on foreign currency financing, the greater the government's reliance on bank lending, the greater is its exposure to exchange rate risk.     

地方政府债券的经济影响分析

地方政府债券的发行对经济的影响涉及宏观、微观、金融、财政、区域发展等多个层面.其在缓解地方财政困难的同时也可能助长地方政府负债冲动,对中央财政的影响则取决于地方政府自身的偿付能力及发债规模的控制.在微观层面.地方政府债券的发行会促进地方性公共品的供给,同时也有利于实现公共品受益的代际公平;在宏观层面,有助于克服利用外资的本币化倾向,规避汇率风险问题.此外,地方政府债券的推出也有助于完善金融市场和金融体系,其对区域经济发展的影响取决于发债地区的选择标准.在推出地方债券的同时,必须通过审慎的管理来防范其风险.     

IFRS Adoption and the Choice Between Public and Private Debt: Evidence from South Korea

This article examines the association between mandatory International Financial Reporting Standards (IFRS) adoption and corporate choice between public debt and private debt. If IFRS adoption increases the quality of lenders’ information environment provided on financial statements, firms are more likely to access the public debt market. Using a sample of public and private debts financing firms from 2000 to 2014 in Korea, we find that firms that file financial reports under the IFRS are less likely to finance from public debt markets, implying that the mandatory IFRS adoption has exacerbated the information environment of the public debt market in Korea.     

The Optimal Redemption Schedule of Serial Municipal Debt: A Dynamic Reconciliation of Revenues,Reinvestment Rates and the Term Structure

The purpose of our research is to developan algorithm that optimally schedules municipaldebt redemptions. It is our hypothesis thatsegmented investor demand, the existing termstructure, the temporal behavior of municipalproject revenues and reinvestment opportunitiesfor interim revenue surpluses are all factorswhich should impact the optimal debt schedulingproblem in a unique and economically meaningfulway. For example, investor preference for shortermaturities and an upward sloping term structureof interest rates should, ceteris paribus,increase the proportion of debt scheduled to berepaid early in the redemption horizon. Ifinvestor demand is limited to a relatively smallgeographic area, such limited demand should bereflected in higher yields. If municipal projectrevenues increase over time then a largerproportion of the debt should be scheduled to beredeemed later. Unfortunately, realisticacknowledgements of the nature of the municipaldebt financing problem create an objectivefunction and a set of constraints which are fartoo complex to yield simple reduced formpresentations of the optimal principalredemptions. Consequently, solutions to theoptimal debt schedule and tests of theconjectures articulated above weresimulated.     

推动征信标准实施 规范数据库用户管理——《金融信用信息基础数据库用户管理规范》解读

《金融信用信息基础数据库用户管理规范》对不同机构在金融信用信息基础数据库上的各类用户做出了约束. 其推广和实施有助于维护信息主体的合法权益,保障金融信用信息基础数据库平稳运行.