Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries

This paper analyzes how exchange rate policy affects the issuance and pricing of sovereign bonds for developing countries. We find that countries with less flexible exchange rate regimes pay higher spreads and are less likely to issue bonds. Changing a free‐floating regime to a fixed regime decreases the likelihood of bond issuance by 5.5% and increases the spread by 88 basis points on average. Countries with real overvaluation have higher spreads and higher bond issuance probabilities. The effects of real overvaluation on sovereign bonds tend to be magnified for countries with fixed exchange rate regimes.     

Factors affecting the scope and initial tightness of covenant restrictions in private lending agreements*

Abstract. This paper explores restrictions in private lending agreements to determine how contractors' status affects (1) the number of limitations on managerial actions and (2) tightness (or slack) of contract restrictions at contract inception. The major result of the multivariate tests is that highly leveraged borrowers are forced to negotiate agreements with both more numerous and tighter restrictions. Debt contracts represent a series of rational trade-offs. Firms with higher debt face more restrictions, which are tighter and more likely to restrict managerial actions. Similarly, borrowers are more likely to agree to tighter extensive restrictions in exchange for more substantial loans. The evidence also indicates that larger firms that possess greater resources to avoid default are able to negotíate looser agreements that contain fewer restrictions. Secured loans do not impose a large number of accounting-based restrictions on managements' actions because secured lenders have less need to restrict managements' options. However, long-term agreements, including insurance loans, include more restrictions on dividends and payout options but use covenant ratios to allow management the flexibility needed over the course of a long-term loan. Résumé. Les auteurs étudient les clauses restrictives des contrats de prêt privés afin de déterminer comment la situation des contractants influe sur 1) le nombre des limites imposées à la direction dans sa marge de manoeuvre et 2) la rigueur (ou la malléabilité) des restrictions contractuelles au début du contrat. Une constatation principale résulte des tests à plusieurs variables aléatoires: les emprunteurs dont le levier financier est important se voient contraints de négocier des contrats contenant à la fois des restrictions plus nombreuses et plus rigoureuses. Les contrats d'emprunt sont en quelque sorte une série de compromis rationnels. Les entreprises dont la dette est plus élevée font face à davantage de restrictions, qui sont plus limitatives et plus susceptibles de réduire la marge de manoeuvre de la direction. D'autre part, les emprunteurs sont plus enclins à accepter que leur soient imposées des restrictions plus rigoureuses et plus nombreuses, en échange de prêts plus substantiels. Les résultats de la recherche révèlent également que les entreprises plus grandes disposant de ressources plus importantes qui diminuent le risque de non-remboursement sont en mesure de négocier des ententes plus souples qui contiennent moins de restrictions. Les prêts garantis n'imposent pas beaucoup de restrictions comptables à la marge de manoeuvre de la direction, puisque les prêteurs garantis éprouvent moins la nécessité de restreindre les options de la direction. Toutefois, les contrats à long terme, parmi lesquels les prêts de compagnies d'assurance, comportent davantage de restrictions relatives aux dividendes et aux options de remboursement mais prévoient dans leurs clauses restrictives des ratios moins sévères, de faccon à assurer à la direction la souplesse qui lui est nécessaire pendant toute la durée des prêts.     

CAP Forum on E‐Business: The Management of Financial Disclosure on Corporate Websites: A Conceptual Model*

This paper addresses the impact of Internet financial reporting (IFR) on financial accounting theory by incorporating it into the general Gibbins, Richardson, and Waterhouse (GRW) (1990) disclosure‐management framework. The GRW model assumes that the firm has a relatively stable process of disclosure management. This process varies between two positions: one ritualistic and the other opportunistic. These dimensions can coexist in the same firm but, on average, the policy of a firm will be either more ritualistic or more opportunistic. Our survey of the financial information disclosed in traditional financial reporting (TFR) as compared with the website disclosures of a random sample of Canadian companies documents a significant difference between TFR and IFR, as well as a wide variability among the sample firms in their use of IFR content, format, and technology. We interpret this variability in the incremental difference of IFR over TFR as an indication that a firm's ritualistic or opportunistic behaviour under IFR is not different from its behaviour under TFR. Thus, the adapted GRW (1990) conceptual model appears to have the potential to support future research in the management of financial disclosure on corporate websites.