Dissertations / Theses on the topic 'Debt Contracting'

This thesis consists of three studies that investigate the channels through which corporate governance reforms, accounting choice, and social capital influence contracting in the corporate bond market. In Chapter 1 (solo authored), I examine the public debt contracting consequences of shocks to managerial entrenchment. For identification, I exploit the mandatory adoption of board independence rules under the NYSE and NASD listing requirements as a regulatory reform that enhanced the intensity of CEO monitoring by independent directors. Using a large sample of corporate bond issues, I find that the rules induced economically significant contracting effects in non-compliant firms, namely in the form of lower payout, financing, and event-related covenants as well as higher credit ratings. In further tests, I show that while these effects are not mitigated by shareholder control, they ultimately depend on directors' private incentives and their ability and willingness to engage in costly monitoring. My findings speak to the debate on how equity-centric governance interacts with bondholders' interests and their incentives to impose long-term restrictions on firms' economic activities. Chapter 2 (co-authored with Peter Pope and Ane Tamayo) examines the contracting relevance of the balance sheet in the corporate bond market. Using "accounting bloat" in net asset values as a proxy for balance sheet quality, we predict and find that aggregate covenant intensity in bond indentures is negatively associated with the quality of issuers' balance sheet numbers. The magnitude of this effect is more pronounced for accounting and event-related covenants and is lower in the case of covenants that restrict payouts, refinancing, and investment activities. Our results are robust to controlling for corporate governance quality and the stringency of monitoring by lenders in syndicated loan deals. Turning to market outcomes, we find that offering yields, credit spreads, and credit ratings are decreasing in balance sheet quality, while the likelihood of agreement among credit rating agencies about new bond issues' credit risk increases with balance sheet quality. To establish a causal link between balance sheet quality and covenant structures, we exploit an exogenous court ruling in Delaware that substantially limits the fiduciary duties of directors to creditors. We show how the legal event affected bond issuers' reporting incentives and altered the debt contracting relevance of their balance sheet numbers. Finally, in Chapter 3 (co-authored with Kalr Lins, Henri Servaes and Ane Tamayo), we investigate whether a firm's capital, and the trust that it engenders, are viewed favourably by bondholders. Using firms' corporate social responsibility (CSR) activities to proxy for social capital, we find no relation between CSR and bond spreads over the 2005-2013 period. However, during the 2008-2009 financial crisis, which represents a shock to trust and default risk, high-CSR firms benefited from lower bond spreads. These effects are more pronounced for firms that, when in distress, have a greater opportunity to engage in asset substitution or divert cash to shareholders. High-CSR firms were also able to raise more debt capital on the primary market during this period, and those high-CSR firms that raised more debt were able to do so at lower at-issue bond spreads, better initial credit ratings, and for longer maturities. Our results suggest that bond investors believe that high-CSR firms are less likely to engage in asset substitution and diversion that would be detrimental to stakeholders, including debtholders. These findings also indicate that the benefits of CSR that accrued to shareholders during the financial crisis carry across to another important asset class, debt capital.

Submitted by Andre Espozel (andre.espozel@gmail.com) on 2017-04-19T17:47:32Z No. of bitstreams: 1 Dissertação - Andre Espozel - FGV-EPGE.pdf: 856389 bytes, checksum: 16cd3a3bbe1de2cc9ab98b718b21acb8 (MD5)
Approved for entry into archive by GILSON ROCHA MIRANDA (gilson.miranda@fgv.br) on 2017-05-04T12:58:29Z (GMT) No. of bitstreams: 1 Dissertação - Andre Espozel - FGV-EPGE.pdf: 856389 bytes, checksum: 16cd3a3bbe1de2cc9ab98b718b21acb8 (MD5)
Made available in DSpace on 2017-05-12T13:05:06Z (GMT). No. of bitstreams: 1 Dissertação - Andre Espozel - FGV-EPGE.pdf: 856389 bytes, checksum: 16cd3a3bbe1de2cc9ab98b718b21acb8 (MD5) Previous issue date: 2017-03-22
This papers tests theoretical predictions concerning to agent compensation, debt structure and investment in the models of dynamic agency in DeMarzo and Fishman (2007), DeMarzo and Sannikov (2006) and DeMarzo, Fishman, He and Wang (2012). The results related to agent compensation are consistent with the patterns predicted in the models, indicating that the firm-years that the models would have as more likely to pay dividends are indeed the ones more likely to pay; also, among firms that pay dividends, more profits generate higher dividend payments and higher executive compensation, as predicted in the models. The prediction that firms that go well and reach a payment threshold present marginal q equal to average q, and thus after controlling for average q cash flows would not explain investment is also supported by the tests in here. On the other hand, predictions related to the role of the credit line and to the debt structure are not compatible with the results in here. The credit line doesn’t seem to be the provider of financial slack that protects the firm from low cash flows and also doesn’t seem to have the dynamics of being paid when profits are high and being more used when profits are low.

Die vorliegende Arbeit untersucht in welchem Ausmaß Manager Optimismus finanzielle Entscheidungen von Unternehmen beeinflusst. Der erste Teil der Dissertation analysiert den Einfluss von Optimismus auf die Ausgabe von Fremdkapital. Optimistische Manager überschätzen die zukünftigen Erfolgsaussichten ihrer Firma. Daher könnten sie Verträge bevorzugen, die die Kuponzahlungen an die zukünftige Entwicklung des Kreditrisikos koppeln (sogenannte PSD Verträge). Diese Hypothese wird empirisch bestätigt. Ein weiteres Ergebnis der empirischen Analysen ist, dass in Firmen mit optimistischen Managern die Kreditqualität nach Ausgabe von PSD sinkt. Der zweite Teil untersucht den Zusammenhang zwischen Manager Optimismus und Spekulation mit Finanzderivaten in Unternehmen. Optimistische Manager, die ihre Fähigkeiten generell überschätzen, könnten irrtümlicherweise denken, dass sie mit Hilfe von Derivaten in der Lage sind den Markt zu schlagen und abnormale Renditen zu erzielen. Die Studie untersucht Derivatetransaktionen von Goldproduzenten in Nordamerika. Diese Industrie ist besonders interessant durch die ausführliche Ausweisung der Derivatepositionen und durch das klare Exposure zum Goldpreisrisiko. Das Ergebnis der Studie bestätigt die Hypothese dass optimistische Manager in größerem Ausmaß spekulieren und mit den Spekulationen letztendlich Verluste produzieren. Der letzte Teil der Arbeit untersucht die Auszahlungspolitik von Firmen mit optimistischen Managern. Optimistische Manager überschätzen durch ihre verzerrte Wahrnehmung den Wert der Firma und sollten daher eher zu Aktienrückkäufen als zu Dividendenzahlungen neigen. Die empirischen Ergebnisse der Arbeit bestätigen diese Voraussage. Optimistische Manager ersetzen Dividenden mit Aktienrückkäufen, das absolute Niveau der Auszahlungen unterscheidet sich jedoch nicht zwischen Firmen mit optimistischen und rationalen Managern.
This work analyses the impact of managerial optimism on financial policies of firms. The first part investigates the effect of optimism on debt contract design. Optimistic managers overestimate the credit quality of their firms and should be more likely to issue debt contracts that link coupon payments to the future credit risk of their firms (PSD contracts). This prediction is confirmed empirically. Further, firms with optimistic managers that issue PSD experience future deteriorations in their credit quality. The second part analyses the relation between managerial optimism and corporate speculation with financial derivatives. Optimistic managers overestimate their abilities and should be more likely to time markets because they believe that they have superior market timing abilities. The study uses data on North American gold producers because these firms disclose detailed data on their derivative positions and have a clear exposure to the gold price. The empirical results confirm the prediction that optimistic engage in more speculation with financial derivatives and that the cash flow resulting from speculation is lower relative to firms with rational managers. The last past analyses the relation between managerial optimism and a firm’s payout policy. As a consequence of their biased beliefs, optimistic managers perceive their firm’s equity as undervalued and should therefore be more likely to prefer share repurchases over cash dividends. The empirical analyses confirm this prediction: Firms with optimistic managers use more share repurchases relative to firms with rational managers. However, the total amount of payouts does not differ between firms with optimistic and rational managers.

Som en följd av Sveriges medlemskap i EU har offentliga upphandlingar kommit att få allt större betydelse eftersom de nu kan ske inom ett betydligt större geografiskt område än tidigare. En konsekvens av detta är att konkurrensen blivit allt hårdare och nya regler införs i takt med den snabba utvecklingen. Ett av resultaten av den hårda konkurrensen på upphandlingsmarknaden har visat sig vara att en del leverantörer lämnar anbud med onormalt låga priser för att vinna upphandlingskontraktet. Förekomsten av onormalt låga anbud i offentliga upphandlingar medför allvarliga negativa konsekvenser såsom att konkurrensen snedvrids, effektiviteten minskar och kostnaderna ökar. Detta påverkar både den upphandlande enheten, leverantören som bjudit onormalt lågt, de leverantörer som slagits ut samt konsumenterna. Att det saknas ett förbud i upphandlingslagstiftningen mot att anta onormalt låga anbud är därför allvarligt. Syftet med denna framställning är att undersöka innebörden av begreppet onormalt lågt anbud i offentliga upphandlingar, belysa problemet med och konsekvenserna av att lagstiftning och regelverk inte i tillräcklig utsträckning uppmärksammar de risker som kan vara förenade med antagandet av onormalt låga anbud samt försöka finna en lösning på problemet.

As a result of Sweden’s membership of the European Union, public procurement has gained more importance, mainly due to the larger geographic territory available. As a consequence of this, competition has become more aggressive and new rules are being incorporated into Swedish law in step with the fast development. One of the results of the tough competition in the public procurement market is that companies may be forced into potentially unsustainable under-bidding in order to win contracts. The presence of these abnormally low tenders in public procurement may have serious negative consequences such as distortion of competition and reduced efficiency, potentially causing delays and waste of resources in the procurement process. This will affect both the contracting authority, the tenderer that has won on an abnormally low bid, the other unsuccessful tenderers, and the ultimately consumers. The fact that public procurement law does not prohibit authorities from accepting abnormally low tenders is therefore potentially very serious. The main objective of this dissertation is to examine the significance of the concept of abnormally low tender, to illuminate the issues surrounding and consequences of the legislative lack of attention to the risks associated with accepting abnormally low tenders, and finally to propose solutions to these issues.

碩士
輔仁大學
會計學系碩士班
94
This study uses 2000~ 2004 listed companies to test whether the companes’ creditors examine the financial statements provided by the listed companies to check their earnings quality and decide the terms of the loan contracts and mitigate the risk of default. This research is the first one in Taiwan to examine the relationship between earnings quality and debt contracting. This thesis adopts absolute Jones-model, modified-Jones-model discretionary accruals and absolute total-accruals to proxy the earnings quality. Furthmore, this study uses loan rate, maturity, collateral to examines the the terms of the loan contracts. The empirical findings of this study are as follows: First, the larger the absolute Jones-model and modified-Jones-model discretionary accruals, the higher the loan rate. This results show that for a company with lower earnings quality, the interest rate will be higher to compensate the potential higher default of lenders and the cost of the borrowing will be higher, accordingly. Second, the larger the absolute Jones-model, modified-Jones-model discretionary accruals and absolute total-accruals, the shorter the maturity of the loan contracts. This evidences that in order to mitigate the high default risk of borrowers with poor earnings quality, the lenders will reduce the maturity of the borrowers’ loan contracts. Third, there are no relationships between the collateral requirements in the loan contracts and any earnings quality proxy variable. This shows that isted companies, maybe, almost borrow money by credit instead of by collateral results.

碩士
中原大學
國際經營與貿易研究所
107
This study examines the relation between accounting conservatism and debt contracting. Using C-Score proposed by Khan and Watts (2009) to measure accounting conservatism and Dealscan syndicated loan data, we are able to examine the relationships of company’s accounting conservatism and the loan contracting, such as spread, loan size, maturity and collaterals, etc in China. We find that firms that are more conservative in accounting are offered lower spread, larger loan amounts, and longer maturity. Results reveal that Chinese banks become more carefully on this accounting information.

碩士
國立臺灣大學
會計學研究所
100
Prior studies argue that the purchase of directors’ and officers’ (D&O) insurance can reduce litigation risks and increase managerial opportunism. As Watts (2003) and Ball and Shivakumar (2005) argue that earnings conservatism can mitigate agency problems through constraining opportunistic behavior of managers, I evaluate whether this earnings conservatism holds when firms with high debt contracting demands purchase D&O insurance. Using data on firms listed in the Taiwan Stock Exchange Corporation and the GreTai Securities Market during 2008-2010, and employing the Basu (1997) specification to measure earnings conservatism, I find that firms with D&O insurance and higher external demand for debts report more earnings conservatism. These results are consistent with prior studies (Ahmed et al., 2002; Watts, 2003) that debtholders demand greater earnings conservatism as a means of addressing agency problems. This study also provides evidence that debtholders appear to be the primary driver of the demand for earnings conservatism.

This study investigates the impact of the debt-contracting value (DCV) of borrowers' accounting information on the likelihood of private debt renegotiation and the implication of renegotiation for borrowing firms' investment efficiency. Accounting numbers, as contractible signals, are broadly used in formal debt contracting. DCV captures the inherent ability of firms' accounting numbers to predict future credit quality. Building on incomplete contract theory, I hypothesize that a lower DCV of a borrower's accounting numbers creates ex post incentives for both parties to renegotiate the terms of the initial contract, leading to a higher probability of renegotiation. During the renegotiation, the lenders can extract partial gains from the borrowers' investment according to their relative bargaining power. Anticipating the high-probability of renegotiation reduces the ex ante investment incentives of borrowers, inducing underinvestment. Using a sample of 3,720 private debt contracts, I find that 76% of the contracts are renegotiated before maturity, and 75% of renegotiation cases are related to the changes of accounting-based contractual terms. I further find that firms with a higher DCV have a lower probability of renegotiation and less underinvestment. Moreover, the impact of DCV on investment increases with lenders' relative bargaining power.

This paper studies the impact of financial reporting scrutiny on (private) debt contracting in the presence of two capital market frictions: a cash-diversion problem and an asset-substitution problem. When cash flow realizations are not verifiable, firms have an incentive to divert cash by manipulating their accounting reports. When firms' project choices are not verifiable, post financing, they may have an incentive to choose riskier projects than desired by their financiers. While earlier work has mostly examined these two frictions independently, they are intricately linked: to address the cash-diversion problem, an optimal contract resembles a debt contract, which in turn causes the asset-substitution problem. Holding the scrutiny of financial reporting fixed, I show that the emergence of the asset-substitution problem, instead of compounding the existing inefficiencies from the cash-diversion problem, may lead to improved investment efficiency and more socially efficient risk-taking. On the other hand, increased reporting scrutiny may undermine investment efficiency (i.e., decrease banks' lending) and adversely affect firms' risk shifting from a social welfare perspective.

This thesis conducts empirical studies related to financial institutions and corporate finance. Specifically, I look at banks’ lending behavior, performance of leveraged buyouts (LBOs), and the cultural impact on cross-border LBOs. Following an introduction in Chapter 1, in Chapter 2, I study U.S. commercial banks’ herding behavior in their domestic loan decisions, where herding is defined as the extent to which banks deviate from the industry average lending decisions and collectively increase or decrease loans to certain categories. I find significant evidence that herding exists and that banks tend to herd more when the economic condition is less favorable, regulation is tight, and when banks are struggling . Overall, these findings support the hypotheses of information asymmetry and regulatory arbitrage as motivations for herding. Chapter 3 provides a comprehensive study of LBO deal characteristics, participants’ involvement, and their impact on target firms’ performance. I find that better post-buyout operating performance is associated with larger amounts of leverage added during the LBO process, tighter LBO loan covenants, and equity contribution by target firms’ incumbent management. LBOs are more likely to exit through an IPO or a sale if they use more bank debt with tighter covenants and are sponsored by private equity (PE) firms of high reputation. These results suggest that the main source of value creation in LBOs is the reduced agency costs through the disciplining effect of debt, closer monitoring by lenders, and the better aligned management incentives. PE reputation is also important in ensuring successful deal outcomes. Chapter 4 (co-authored) examines the impact of cultural differences between PE firms and target firms on the completion of cross-border LBOs. We find that cultural distance between PE and target firms reduces the likelihood of buyout completion and increases the time between buyout announcement and completion. We also find that club deals moderate the negative (positive) impact of cultural distance on the likelihood (the duration) of LBO completion. This mitigation effect is through the increased familiarity channel of club formation. Our findings contribute to the literature that underscores the importance of culture in economic outcomes.
Thesis (Ph.D, Management) -- Queen's University, 2014-06-24 08:59:00.0