Journal articles: 'Financial covenants'

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Chava, Sudheer, Shunlan Fang, and Saumya Prabhat. "Signaling through Dynamic Thresholds in Financial Covenants." Journal of Financial Reporting 6, no. 1 (January 29, 2021): 55–85. http://dx.doi.org/10.2308/jfr-2018-0028.

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ABSTRACT Among loan contracts originated during 1996–2015 with covenants, 37 percent have financial covenant thresholds that automatically tighten according to a predetermined schedule. Firms that accept dynamic covenant thresholds improve their creditworthiness, but they are more likely to violate covenants relative to matched control firms. In the event of a covenant violation, these firms are less likely to receive a waiver. They also tend to pay higher waiver fees, experience greater investment cuts, reclassify more debt as callable within one year, and they are more likely to switch lead lenders. Overall, our findings suggest that, on average, signaling through dynamic thresholds in covenants is credible but costly to borrowers should they fail to deliver the signaled performance. JEL Classifications: G14, G21, G32, G34, M41.

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Chava, Sudheer, Shunlan Fang, Praveen Kumar, and Saumya Prabhat. "Debt Covenants and Corporate Governance." Annual Review of Financial Economics 11, no. 1 (December 26, 2019): 197–219. http://dx.doi.org/10.1146/annurev-financial-110716-032511.

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We review the recent theoretical and empirical literature on debt covenants with a particular focus on how creditor governance after covenant violations can influence the borrower's corporate policies. From the theoretical literature, we identify the key trade-offs that help explain the observed heterogeneity in covenant types, inclusion, likelihood of violation, and postviolation renegotiation flexibility. Empirically, we first review the literature that deals with ex ante evidence on covenant design and the various factors that influence covenant design; we next review the ex post evidence on the impact of technical covenant violations on the borrower. We then discuss limitations of the existing theoretical and empirical studies and conclude with some directions for future research in this burgeoning area.

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Cohen, Moshe, Sharon P. Katz, Sunay Mutlu, and Gil Sadka. "Do Debt Covenants Constrain Borrowings Prior to Violation? Evidence from SFAS 160." Accounting Review 94, no. 2 (July 1, 2018): 133–56. http://dx.doi.org/10.2308/accr-52204.

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ABSTRACT Prior evidence shows a reduction in leverage after covenant violations, but we do not know whether covenants affect leverage before they are violated. In this study, we use an exogenous accounting-based shock to debt covenants that relaxed covenant tightness (SFAS 160) and examine whether covenants constrain leverage for borrowers that are close to violation, even when the borrower is financially healthy. We find that SFAS 160 increased debt levels in firms that were close to violation. This increase in debt was driven by financially healthy firms, suggesting the likelihood of future covenant violations could impede borrowing by firms. We also find an increase in investment sensitivity to Q after SFAS 160 in firms close to violation, suggesting the additional debt was used to make legitimate investments. Because SFAS 160 was passed in the midst of the financial crisis, it is difficult to generalize our findings to more normal financial periods. JEL Classifications: G01; G30; G31; G33; M21; M41.

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Bradley, Michael, and Michael R. Roberts. "The Structure and Pricing of Corporate Debt Covenants." Quarterly Journal of Finance 05, no. 02 (June 2015): 1550001. http://dx.doi.org/10.1142/s2010139215500019.

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We provide evidence on the covenant structure of corporate loan agreements. Building on the work of Jensen and Meckling [1976, Theory of the Firm: Managerial Behavior, Agency Costs, and Captial Structure, Journal of the Financial Economics 3, 305–360], Myers [1977, Determinants of Corporate Borrowing, Journal of Financial Economics 5, 145–147] and Smith and Warner [1979, On Financial Contracting: An Analysis of Bond Covenants, Journal of Financial Economics 7(2), 117–161]. We summarize and test the implications for what we refer to as the Agency Theory of Covenants (ATC), using a large sample of privately placed corporate debt. Our results are consistent with many of the implications of the ATC, including a negative relation between the promised yield on corporate debt and the presence of covenants. We also find that borrower and lender characteristics, as well as macroeconomic factors, determine covenant structure. Loans are more likely to include protective covenants when the borrower is small, has high growth opportunities or is highly levered. Loans made by investment banks and syndicated loans are also more likely to include protective covenants, as are loans made during recessionary periods or when credit spreads are large. Finally, we show that consistent with the ATC, firms that elect to issue private rather than public debt are smaller, have greater growth opportunities, less long-term debt, fewer tangible assets, more volatile cash flows and include more covenants in their debt agreements. An important byproduct of our analysis is to demonstrate empirically that covenant structure and the yield on corporate debt are determined simultaneously.

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WEI, Tzu-Wen, Jyh-An LEE, Chi-Jui Huang, and Tse-Ping DONG. "COVENANT DESIGN IN FINANCIAL CONTRACTS: A CASE STUDY OF THE PRIVATE EQUITY ACQUISITION OF HCA." International Journal of Strategic Property Management 19, no. 4 (December 23, 2015): 325–35. http://dx.doi.org/10.3846/1648715x.2015.1073192.

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A buyout deal involves several parties, including private equity firms, the target company, and lending banks. All these parties are legally connected by contractual arrangements, and covenants among all interest parties are important. However, a comprehensive study on designing covenants among parties in a buyout deal to achieve commitment and avoid risk in closing a deal is seldom seen in current literature. By investigating one of the world's largest buyout deals – the acquisition of Hospital Corporation of America (HCA), this paper not only probes into the design of contracts and covenant, but also provides several managerial implications. This paper concludes that well-designed covenants in buy-out deals can appropriately align all participants’ diversified interests.

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Basar, Nur Fatwa, and Andi Hendro. "The Role of Debt Covenant in Moderating the Effects of Poilitical Cost on Accounting Conservatism." Volume 5 - 2020, Issue 9 - September 5, no. 9 (September 24, 2020): 505–10. http://dx.doi.org/10.38124/ijisrt20sep315.

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The purpose of this study was to analyze the direct effect of political cost and debt covenant on accounting conservatism. Besides, this study also analyzes the role of debt covenants as a moderator between the effect of political cost on accounting conservatism. The companies that are the samples are companies indexed on the IDX30 other than financial services companies and companies with non-rupiah financial reports. the data used is secondary data from the financial statements of 20 companies listed on the Indonesian stock exchange. data analysis using multiple linear regression and analysis of variance. The results showed that political cost directly affects accounting conservatism positively and significantly. whereas debt covenant does not have a direct significant effect on accounting conservatism. Besides, this study shows the role of debt covenants in strengthening the effect of political costs on accounting conservatism.

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Naumenkova, Svitlana, Ievgen Tishchenko, Svitlana Mishchenko, Volodymyr Mishchenko, and Viktor Ivanov. "Assessment and mitigation of credit risks in project financing." Banks and Bank Systems 15, no. 1 (March 6, 2020): 72–84. http://dx.doi.org/10.21511/bbs.15(1).2020.08.

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Lending to long-term investment projects in fragile countries requires additional financial instruments to control the sustainability of project cash flows and to increase the borrower’s financial discipline in debt servicing. This paper analyzes the special aspects of using financial covenants as credit risk mitigation instruments in project financing in Ukraine. It also argues that regulatory requirements to maintain financial strength indicators at the appropriate level have an indirect impact on the change in project finance loan rates. The study primarily aims at developing approaches to defining a credit rate corridor for an investment project, depending on changes in the values of financial sustainability indicators. The implementation of the proposed approach allows increasing the validity of credit risk components for investors and optimizing capital value for borrowers.As required by international practice, violation of covenant terms is the trigger for satisfying the creditors’ claims. According to the authors’ conclusions, the use of financial covenants as a tool for protecting the creditors’ interests should not be an instrument of unreasonable financial pressure on borrowers. The study reveals benefits and drawbacks of using financial covenants to mitigate credit risk and reduce the probability of a borrower default in the field of project financing in Ukraine.

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Fan, Yun, Wayne B. Thomas, and Xiaoou Yu. "The Impact of Financial Covenants in Private Loan Contracts on Classification Shifting." Management Science 65, no. 8 (August 2019): 3637–53. http://dx.doi.org/10.1287/mnsc.2018.3110.

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This study examines whether firms with private loan contracts that contain debt covenants based on earnings before interest, taxes, depreciation, and amortization (EBITDA) are more likely to misclassify core expenses as special items (i.e., classification shift). Misclassifying core expenses as income-decreasing special items allows the firm to increase EBITDA and thereby potentially avoid debt covenant violations. Consistent with our expectation, firms misclassify core expenses as special items when at least one EBITDA-related financial covenant is close to being violated. In addition, classification shifting is more prominent when financially distressed firms are close to violating at least one EBITDA-related covenant. Whereas prior research on classification shifting focuses primarily on equity market incentives (e.g., meeting analysts’ earnings forecasts), our study extends this research to private loan contracts to highlight that creditors also affect classification shifting. Classification shifting appears to be an additional earnings management technique used by managers to avoid debt covenant violations. This paper was accepted by Shivaram Rajgopal, accounting.

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KABII, THOMAS, and PIERRE HORWITZ. "A review of landholder motivations and determinants for participation in conservation covenanting programmes." Environmental Conservation 33, no. 1 (March 2006): 11–20. http://dx.doi.org/10.1017/s0376892906002761.

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Conservation covenants (or easements) are flexible but legally enforceable documents attached to a land title restricting the use of that land, providing for the protection of important conservation values, while allowing the landholder to retain possession. Given the attractiveness of covenants to those who seek to expand national and regional nature conservation initiatives, it is important to understand landholder motivations for participation in programmes that covenant for nature conservation. This paper examines the likely influences on landholder decision making when it comes to conservation initiatives. A review of literature highlights key motivations and determinants, such as landholder demographics and the nature of the land tenure in question, their knowledge and awareness of the programme, financial circumstances, and perceptions of financial and other risks and benefits of the programme itself, including incentives and compensation. Underpinning, or mediating, the decision-making processes will be landholder philosophies and values, and five constructs are determined from the review, namely economic dependence on property, private property rights, confidence in perpetual covenant mechanisms, nature conservation equity and nature conservation ethic. Using these constructs, a series of explicit hypotheses is drawn, applicable to agencies dealing with conservation covenants and testable through an adaptive management approach. A conceptual model is presented to show hypothesized relationships between motivational factors and the five constructs that will lead to the uptake of covenants by landholders, providing direction for policy makers and managers of incentive programmes for nature conservation on private lands.

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Haage, Roland. "Financial Covenants in der Praxis." Controlling 27, no. 3 (2015): 200–205. http://dx.doi.org/10.15358/0935-0381-2015-3-200.

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Paik, Daniel Gyung, Timothy Hamilton, Brandon Byunghwan Lee, and Sung Wook Yoon. "Loan purpose and accounting based debt covenants." Review of Accounting and Finance 18, no. 2 (May 13, 2019): 321–43. http://dx.doi.org/10.1108/raf-10-2017-0194.

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Purpose The purpose of this paper is to investigate the association between the purpose of a loan and the type of debt covenants, separated into balance sheet-based and income statement-based covenants. Design/methodology/approach Using private loan deal observations obtained from the DealScan database over the period between 1996 and 2013, the authors classify the sample loan deals into three categories based on the purpose of borrowing, namely, borrowings for corporate daily operating purposes, financing purposes and acquisition and investing purposes. The authors conduct multinomial logistic regression analysis to test the relationship between the choice of financial ratios in a debt covenant and the purpose of a loan, controlling for financing constraints and other factors that have been identified as important to debt covenant analysis in prior studies. Findings The results provide evidence that the purpose of the loan is significantly associated with the type of debt covenants, suggesting that the lender and the borrower have considered the loan purpose when structuring their debt agreements. More specifically, the results indicate that the loans borrowed to fund acquisitions or long-term investment projects are more likely to have income statement-based covenants and less likely to have balance sheet-based covenants. In contrast, the loans borrowed for corporate daily operating purposes or financing purposes are more likely to contain balance sheet-based covenants relative to income statement-based covenants. Research limitations/implications The authors show that loan purpose is significantly associated with the choice between income statement-based and balance sheet-based covenants. This result further illustrates ways in which accounting information improves contracting efficiency. The results are limited to the US market with its institutional structure. In future studies, it would be interesting to perform similar investigations on firms in other countries. Practical implications The findings contain important and economically significant implications indicating that loan lenders and borrowers agree to include different types of accounting information (that is, income statement- versus balance sheet-based financial ratios) in their loan covenants for different purpose loans. Social implications Overall, the results provide important evidence regarding the connection between debt covenant structure and loan purpose. In doing so, it contributes to the literature on debt contract design (Dichev and Skinner 2002; Chava and Roberts 2008; Demerjian 2011; Christensen and Nikolaev 2012). Despite much interest in debt contract design, Skinner (2011) argues that there still exists incomplete knowledge of the economic factors that structure debt contracts. Income statement-based covenants depend on measures of profitability and efficiency and act as trip wires that transfer control rights to lenders when borrowing firms’ performance deteriorates. On the other hand, balance sheet-based covenants rely on information about sources and uses of capital and align interests between borrowing firms and lenders by restricting the borrower’s capital structure. The authors show that loan purpose is significantly associated with the choice between income statement-based and balance sheet-based covenants. This result further illustrates ways in which accounting information improves contracting efficiency. Originality/value This study is the first to identify differences in trends over time for the use of income statement- and balance sheet-based covenants as it relates to different loan purposes. The authors build on prior research to examine the degree to which loan purpose is associated with the choice between income statement-based and balance sheet-based covenants.

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Wang, Yuqian, Che-Wei Chiu, and Mark Wrolstad. "Do Covenants of Bonds Outstanding Affect the Choice of Covenants of New Issues? Evidence from the U.S. Corporate Bonds." Accounting and Finance Research 7, no. 1 (January 11, 2018): 223. http://dx.doi.org/10.5430/afr.v7n1p223.

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This paper investigates the relation between debt covenants of a firm’s bonds outstanding and covenants of its newly issued bonds. On the one hand, since covenants are priced and costly, newly issued bonds may not include covenants that have been used in bonds outstanding, suggesting a negative relation between covenants of bonds outstanding and those of new issues. On the other hand, since firms tend to use boilerplate language in debt indentures, similar covenants of bonds outstanding are likely to be used repeatedly in the contracts of new issues, indicating a positive relation. Based on the U.S. public corporate bonds data from 1990 to 2014, this paper provides empirical evidence that covenants of a firm’s new issues are positively related to covenants of its bonds outstanding, suggesting boilerplate language is widely used in corporate bond contracts. Results also show that use of boilerplate language is significantly related to issuers’ financial condition and economic cycle. Issuers with stable financial condition, as measured by commercial paper ratings, tend to use boilerplate language more frequently. And during the Dot-Com bubble period, boilerplate language is used more prevalently than during the financial crisis period.

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Paik, Daniel Gyung, Joyce Van Der Laan Smith, Brandon Byunghwan Lee, and Sung Wook Yoon. "Are leases substitutes or complements to debt? Insights from an analysis of debt covenants." Review of Accounting and Finance 19, no. 3 (June 20, 2020): 339–61. http://dx.doi.org/10.1108/raf-05-2019-0106.

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Purpose The purpose of this study is to investigate the relationship between off-balance-sheet (OBS) operating leases and long-term debt by analyzing firms’ debt risk profiles measured by the constraints on firms in the financial ratios in their debt covenants. Design/methodology/approach This study determines debt risk profiles using three measures: the ex ante probability of covenant violation (Demerjian and Owens, 2016), firms in violation of debt covenants and firms close to covenant violations. Findings High-risk firms according to all three measures, on average, have a significantly lower level of operating leases, indicating that these firms use OBS leases as a substitute for long-term debt. Interestingly, for firms operating in industries in which leases are widely available, firms with a high probability of covenant violation have a significantly higher level of operating leases, indicating that these firms use OBS leases as a complement to long-term debt. Further analysis indicates that lease financing is less costly than debt financing for these firms. Research limitations/implications Overall, evidence of this study indicates that firms facing financial constraints may attempt to lease more of their assets, but the availability of leasing is constrained by their debt covenant obligations and the strength of the leasing market in its industry. Originality/value This study identifies states in which risky firms may treat leases as either complements or substitutes for long-term debt, implying that the leasing decision relates to the availability of an active leasing market for a firm’s assets and the firm’s financial constraints. The findings of this study support recent research showing that debt and leases are complementary in the presence of counterparty risk providing insight into the paradoxical relationship identified in prior research between leases and long-term debt.

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Abdurrahman, Adamu Pantamee, Shafi Mohamad, Ooi Chee Keong, and Syed Ehsanullah. "Debt Covenants and Accounting Conservatism." International Journal of Financial Research 11, no. 4 (June 28, 2020): 537. http://dx.doi.org/10.5430/ijfr.v11n4p537.

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The purpose of this study is to examine the association between debt covenants and accounting conservatism. The study uses the data of 180 non-financial listed companies on the Malaysian Stock Exchange during the period of 2008 to 2018. Our findings suggest that the increasing use of debt covenants automatically gears up the firm to focus on the timely recognition of loss in order to satisfy the debt market. Further, we also examine whether there is a relationship between those firms’ that are more dependent on debt covenants and timely recognition of losses. This study finds that as the firm depends more on covenants their emphasis on the timely recognition of economic loss increases to avoid potential debt market issues. We also discuss the transfer of controls and power to the bondholders in a situation of financial distress and the auditor’s responsibility to monitor the limitations of accounting conservatism.

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Malitz, Ileen. "On Financial Contracting: The Determinants of Bond Covenants." Financial Management 15, no. 2 (1986): 18. http://dx.doi.org/10.2307/3664974.

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Church, Bryan K., Jeffrey J. McMillan, and Arnold Schneider. "Factors Affecting Internal Auditors' Consideration of Fraudulent Financial Reporting during Analytical Procedures." AUDITING: A Journal of Practice & Theory 20, no. 1 (March 1, 2001): 65–80. http://dx.doi.org/10.2308/aud.2001.20.1.65.

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This study investigates internal auditors' consideration of fraudulent financial reporting as an explanation for an unexpected difference in operating income. We examine whether such consideration is affected by the direction of the difference, the use of earnings-based bonus plans, and the restrictiveness of debt covenants. We conduct an experiment in which 127 internal auditors list potential explanations for the unexpected difference. We find that these factors affect internal auditors' consideration of fraudulent financial reporting. Internal auditors list a larger proportion of explanations involving fraud (1) when income is greater than expected, and (2) when debt covenants are restrictive, conditioned on income being greater than expected. We also find that internal auditors assign a higher likelihood of fraud when (1) income is greater than expected, and (2) when an earnings-based bonus plan is used and debt covenants are restrictive. The practical implication is that specific factors can affect internal auditors' consideration of fraudulent financial reporting and potentially may impact audit plans.

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Attar, Andrea, Catherine Casamatta, Arnold Chassagnon, and Jean-Paul Décamps. "Multiple Lenders, Strategic Default, and Covenants." American Economic Journal: Microeconomics 11, no. 2 (May 1, 2019): 98–130. http://dx.doi.org/10.1257/mic.20170189.

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We study capital markets in which investors compete by designing financial contracts to control an entrepreneur’s ability to side trade and default on multiple loans. We show that covenants may have anticompetitive effects: in particular, they prevent investors from providing additional funds and reduce the entrepreneur’s investment capacity. As a result, a large number of inefficient allocations is supported at equilibrium. We propose a subsidy mechanism similar to guarantee funds in financial markets that efficiently controls the entrepreneur’s side trading and sustains the competitive allocation as the unique equilibrium one. (JEL D21, D82, D86, G21, G32)

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Panjaitan, Yunia. "KECENDERUNGAN PELANGGARAN PERJANJIAN UTANG PADA PERUSAHAAN KONSTRUKSI DAN PROPERTI DI BEI." Jurnal Akuntansi 14, no. 2 (January 8, 2021): 151–66. http://dx.doi.org/10.25170/jak.v14i2.1232.

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The importance of debt covenant violation is to minimize the debtholder default risk. The possibility of debtholder’s default risk may be caused by liquidity problems, low profitability, and bad quality of earnings. Hence, this study aims to proof the tendency of debtholder to violate debt covenants by measuring current ratio volatility, return on assets, and earnings quality as independent variables. By using five companies from construction and property sub-sector that listed on Indonesia Stocks Exchange in 2016- 2018, the data are analyzed with multiple linear regression model for panel data. From this study, we can conclude that the impact of return on assets to debt covenant violation is significantly negative, debtholders with poor financial performance have higher potential to do debt covenant violation. However, there is no evidence that debt covenant violation is affected current ratio volatility and earnings quality.

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KARMINSKII, Aleksandr M., and Ol'ga D. KHON. "Collateral sufficiency as an adapt financial covenant in bank crediting." Digest Finance 26, no. 1 (March 30, 2021): 83–106. http://dx.doi.org/10.24891/df.26.1.83.

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Subject. The article examines the Loan-to-Value ratio in three dimensions. First, as a measure of leverage, helpful to understand the spread of systemic risk in the economy. Second, we identify LTV throughout financial covenants. Finally, we implement LTV to indicate the probability of default. Objectives. The goal of the paper is to study the impact of collateral sufficiency on credit risk throughout adjusted financial covenants for bank corporate loans. Methods. To conduct the research, the authors implement econometric methods, linear regressions and binary models. Results. We have revealed the prevalence of the posterior theory of the impact of the collateral sufficiency on the credit risk evaluation by corporate loans. We have also revealed that the higher credit risks, the higher collateral requirements to pledge the loans. Conclusions and Relevance. We have considered a new approach to identify collateral requirements, throughout LTV measures, as adjusted financial covenants on the Russian market. Lender’s preferences are being stronger at the time of downturns in economic activity. At the same time, economic growth neutralizes any visible behavioral favors/patterns. Hereby psychological risk components are quite essential, and need studying in modern banking.

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Cheng, Ai-Fen, and Tao-Hsien Dolly King. "Corporate governance and financial contracting: bondholder takeover defenses in poison puts." Corporate Ownership and Control 7, no. 2 (2009): 9–20. http://dx.doi.org/10.22495/cocv7i2p1.

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Bondholder governance through the use of bond covenants and the interactions between shareholder and bondholder governance mechanisms has been recently highlighted in the corporate governance literature. In this paper, we study bondholder governance mechanisms through takeover-related bond covenants (i.e., poison puts), confirm with agency theory on the characteristics of firms that are more likely to use these covenants, and emphasize the importance of bondholder governance in the overall structure of corporate governance. We find that poison puts are often bundled with asset sale, payout, and financing restrictions, which is consistent with agency theory. We also find that high growth firms, large, profitable, low-leverage firms are more likely to use poison puts. In addition, our results on free cash flow, insider and institutional ownership provide support for agency explanation. Lastly, we find that poor bond market performance and good equity market performance are likely to motivate the incidence of poison put bond issuance. Volatility of interest rate and volatility of bond index returns motivate more issues of poison put debt. Finally, greater market term and default premiums promote the use of poison puts.

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BOZANIC, ZAHN, MARIA LOUMIOTI, and FLORIN P. VASVARI. "Corporate Loan Securitization and the Standardization of Financial Covenants." Journal of Accounting Research 56, no. 1 (December 15, 2017): 45–83. http://dx.doi.org/10.1111/1475-679x.12186.

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Achleitner, Ann-Kristin, Reiner Braun, Bastian Hinterramskogler, and Florian Tappeiner. "Structure and Determinants of Financial Covenants in Leveraged Buyouts*." Review of Finance 16, no. 3 (March 1, 2011): 647–84. http://dx.doi.org/10.1093/rof/rfq031.

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Mather, Paul, and Graham Peirson. "Financial covenants in the markets for public and private debt." Accounting and Finance 46, no. 2 (June 2006): 285–307. http://dx.doi.org/10.1111/j.1467-629x.2006.00168.x.

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DeAngelo, Harry, Linda DeAngelo, and Karen H. Wruck. "Asset liquidity, debt covenants, and managerial discretion in financial distress:." Journal of Financial Economics 64, no. 1 (April 2002): 3–34. http://dx.doi.org/10.1016/s0304-405x(02)00069-7.

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LI, NINGZHONG. "Performance Measures in Earnings-Based Financial Covenants in Debt Contracts." Journal of Accounting Research 54, no. 4 (June 27, 2016): 1149–86. http://dx.doi.org/10.1111/1475-679x.12125.

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Priyanti, Desy Wahyu, and Trisni Suryarini. "How Do Trading, Service, and Investment Sector Companies Make Transfer Pricing Decisions?" Journal of Accounting and Strategic Finance 4, no. 1 (May 14, 2021): 1–12. http://dx.doi.org/10.33005/jasf.v4i1.109.

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The purpose of this study was to examine the effect of bonus mechanisms, tunneling incentives, debt covenants, and sales growth on company decisions in transfer pricing practices. Trading, service, and investment companies listed on the Indonesian Stock Exchange (IDX) in 2014-2018 were used as the research population. The sampling technique used a purposive sampling method with specific criteria so that the final sample of the study was 21 sample companies. The research analysis technique used multiple regression analysis techniques using the IBM SPSS 21 application. This study proved that the bonus mechanism and sales growth could not influence the company to choose to practice transfer pricing. Tunneling incentives have a positive and significant effect on the decision to practice transfer pricing. In contrast, debt covenants have a negative and significant impact on the decision to practice transfer pricing. This research concluded that bonus mechanisms and sales growth could not determine transfer pricing practice decisions, while tunneling incentives can influence companies in making decisions on transfer pricing practices. Debt covenant has a negative and significant effect on transfer pricing practice decisions. Future research may use other bonus mechanism measures, such as proxies for compensation. Subsequent studies can select company objects with a larger population, such as non-financial companies on the IDX.

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Balachandran, Balasingham, Huu Nhan Duong, and Van Hoang Vu. "Pension Deficits and the Design of Private Debt Contracts." Journal of Financial and Quantitative Analysis 54, no. 4 (September 14, 2018): 1821–54. http://dx.doi.org/10.1017/s0022109018000935.

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We find a positive relation between the amount of pension deficits and the cost of bank loans. The effect of pension deficits on the cost of bank loans is driven by financial constraints, information-asymmetry problems, and higher pension-investment risk. Banks tighten lending terms for firms with larger pension deficits by requiring collateral, increasing the number of loan covenants, and shortening loan maturity. Borrowers with larger pension deficits are also more likely to violate covenants in the future. Collectively, these findings indicate that pension deficits represent an additional source of risk priced by banks.

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Królikowska, Elżbieta, and Agata Sierpińska-Sawicz. "The Types of Covenants in Bond Issuance Programs of Mining Industry Companies." Gospodarka Surowcami Mineralnymi 32, no. 2 (June 1, 2016): 135–52. http://dx.doi.org/10.1515/gospo-2016-0014.

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AbstractIn the article, the authors attempt to quantify the covenants, which are the special terms of the bond issuance programs, reducing a risk of the bondholders. The type and the character of the covenants depend on several circumstances like: financial situation of a bond issuer, industry risk, country risk or economic situation. The most common used covenants refer to several limitations like payments, taking out the loans, issuance of the next series of bonds, credit events, dividend payouts. The separate group of covenants are those which constitute a limitation of an assets disposal, a range of the investments, the mergers and acquisitions or those that refer to maintaining the rating. The belief that the bond issuance is the easiest way of rising the funds in comparison to a bank loan is not fully supported. The covenants have significant influence on a performance of a bond issuer. Some of the covenants cause losing a flexibility of a company and restrict a possibility of making the effective decisions which can lead to rising the risk of a bankruptcy. The limitations included in a bond issuance program could be particularly inconvenient for a company’s development and may demand the assets restructuring which range is hard to predict while a bond agreement is being signed. In terms of using the funds gained from bond issuance for an operating performance, the ability to go in a line with the covenants is less likely while the same funds will be spent on the investments which will generate the profits and amortisation in the future. It allows to gain the appropriate level of EBITDA as well as makes a bond repurchase possible. It is worth to add that the investors and the stock brokers who are responsible for a bond issuance program preparation have an influence on the quantity and quality of the covenants. They define the standard used covenants in the bond agreements. The knowledge and the negotiation skills of the managers have significant influence on the adjusting the bond contracts to the company and branch risk.

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Suryo Nugroho. "The Effect of Covenant Debt And Managerial Ownership On Accounting Conservatism." Journal of Economic, Accounting and Management Science (JEAMS) 4, no. 1 (July 4, 2022): 16–27. http://dx.doi.org/10.55173/jeams.v4i1.23.

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The emergence of the trend of weakening the value of the rupiah is considered to have a negative impact on the company's performance. Quoted from Kontan.co.id, the weakening of the rupiah could weigh on ANTM's performance. Because, in the second quarter of 2018 ANTM suffered a foreign exchange loss of IDR 173 billion. This figure jumped 122% compared to the previous quarter. One of the reasons for this is that 72% of ANTM's debt up to the first semester is denominated in US dollars, which is sensitive to the volatility of the rupiah exchange rate. Based on agency theory, managerial ownership and debt covenants are considered to be able to influence the demand for conservative financial statements. So this study aims to explain and analyze the effect of debt covenants and managerial ownership on conservatism in mining companies listed on the IDX in 2015-2019. The sample used in this study was 55 by testing using multiple linear regression which was processed using SPSS version 25 software. The results of the research showed that debt covenants as measured by performance covenants had no effect, while managerial ownership had a positive effect on conservatism.

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Brycz, Bogumiła, Marek Pauka, and Natalia Śmieja. "Structure and restrictiveness of financial covenants in bond contracts on Catalyst." Zeszyty Naukowe Uniwersytetu Szczecińskiego Finanse, Rynki Finansowe, Ubezpieczenia 2015, no. 75 (June 30, 2015): 67–81. http://dx.doi.org/10.18276/frfu.2015.75-06.

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Guay, Wayne R. "Conservative financial reporting, debt covenants, and the agency costs of debt." Journal of Accounting and Economics 45, no. 2-3 (August 2008): 175–80. http://dx.doi.org/10.1016/j.jacceco.2008.05.001.

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Jieandy, Sheren Danella, and Ignatius Roni Setyawan. "Penentuan Collateral Coverage Ratio (CCR) Suatu Perusahaan dengan Menggunakan Financial Ratio Covenants." Jurnal Manajerial Dan Kewirausahaan 2, no. 3 (October 9, 2020): 812. http://dx.doi.org/10.24912/jmk.v2i3.9595.

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The purpose of this research is to investigate the influence of Current Ratio, Debt To Equity Ratio, and Company Size to Collateral Coverage Ratio (CCR) at registered company. The sample used in this research consists 100 companies that listed on the Indonesia Stock Exchange. The sampling method is non probability sampling with the sampling technique using purposive sampling. The analysis is performed by using the Panel Data regression analysis by the Fixed Effects Model in testing the hypothesis. The results show that Debt To Equity Ratio (DER) have a positive effect on Collateral Coverage Ratio (CCR) while Current Ratio CR) and Company Size (SIZE) have a negative effect on Collateral Coverage Ratio (CCR). Tujuan penelitian ini adalah untuk mengetahui pengaruh Current Ratio, Debt To Equity Ratio, dan SIZE terhadap risiko kredit Collateral Coverage Ratio (CCR) pada perusahaan yang terdaftar. Sampel yang digunakan dalam penelitian ini terdiri dari 100 Perusahaan yang terdaftar pada Bursa Efek Indonesia. Metode pengambilan sampel yang digunakan yaitu non probability sampling dengan teknik pengambilan sampel menggunakan purposive sampling. Analisis dilakukan dengan menggunakan Analisis Regresi Data Panel dengan Fixed Effect model dalam pengujian hipotesis. Hasil menunjukkan bahwa Debt To Equity Ratio (DER) berpengaruh positif terhadap Collateral Coverage Ratio (CCR) sedangkan Current Ratio (CR) dan Ukuran Perusahaan (SIZE) berpengaruh negatif terhadap Collateral Coverage Ratio (CCR).

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Citron, David B. "Financial Ratio Covenants in UK Bank Loan Contracts and Accounting Policy Choice." Accounting and Business Research 22, no. 88 (September 1992): 322–35. http://dx.doi.org/10.1080/00014788.1992.9729448.

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MATHER, PAUL. "Financial Covenants in Australian Bank-Loan Contracts: Incidence, Measurement Rules and Monitoring." Australian Accounting Review 9, no. 17 (March 1999): 63–72. http://dx.doi.org/10.1111/j.1835-2561.1999.tb00100.x.

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Togo, Dennis F. "Amaya Company: Financial Considerations For Product-Mix LP Models." Journal of Business Case Studies (JBCS) 4, no. 11 (July 5, 2011): 13. http://dx.doi.org/10.19030/jbcs.v4i11.4817.

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The Amaya Company case illustrates how financial considerations can be added to product-mix linear programming (LP) models to create a more realistic and robust decision aid. Most managerial/cost accounting or operations management courses introduce product-mix LP models but without financial considerations such as cash flows and its interest expense, debt covenants, or the time value of money. Hence, the initial product-mix solution may not be acceptable when managers scrutinize its impact for related financial requirements. Students completing the Amaya Company case add financial considerations to a product-mix LP problem and examine the resulting change from the misleading initial solution.

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Achleitner, Ann Kristin, Carolin Bock, and Florian Tappeiner. "Financial covenants and their restrictiveness in European LBOs - an assessment in the aftermath of the financial crisis." International Journal of Entrepreneurial Venturing 4, no. 3 (2012): 214. http://dx.doi.org/10.1504/ijev.2012.048600.

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Sari, Dyah Ayu Mawar, and Chaidir Djohar. "PENGARUH PROFITABILITAS, DEBT COVENANT DAN MEKANISME BONUS TERHADAP TRANSFER PRICING." Yudishtira Journal : Indonesian Journal of Finance and Strategy Inside 2, no. 2 (August 30, 2022): 227–43. http://dx.doi.org/10.53363/yud.v2i2.38.

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This study aims to find out and provide empirical evidence on the Influence of Profitability, Debt Covenant and Bonus Mechanism on Transfer Pricing in Raw Goods Sector Companies listed on the IDX for the period 2016-2020. The type of research used is quantitative (secondary) research that is causally comparative. The number of samples in this study was 50 observational data from 10 raw goods sector companies period 2016-2020 obtained using purposive sampling methods based on predetermined criteria. The data used is secondary data in the form of annual financial statements that have been audited in the period 2016-2020 obtained from the official website of the IDX. Technical data analysis used is descriptive statistics and regression analysis of panel data using Eviews-9 software. The results of this study are based on partial tests with the T-Test stating that Profitability has no significant effect on transfer pricing, Debt covenant has a significant effect on transfer pricing and Bonus mechanism has no significant effect on transfer pricing. Based on simultaneous tests with F-Test states that profitability, debt covenants and bonus mechanisms do not have a simultaneous and significant influence on Transfer Pricing

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Istiqomah and Baihaqi Fanani. "Pengaruh Mekanisme Bonus, Tunneling Incentive, dan Debt Covenant Terhadap Transaksi Transfer Pricing." Permana : Jurnal Perpajakan, Manajemen, dan Akuntansi 12, no. 1 (February 29, 2020): 56–66. http://dx.doi.org/10.24905/permana.v12i1.93.

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The Effect of Bonus Mechanisms, Tunneling Incentive and Debt Covenant on Transfer Pricing Transactions. (Empirical Study of Manufacturing Companies Listed on the Indonesia Stock Exchange in 2014-2018).This study aims to determine the effect of bonus mechanism, tunneling incentive and debt covenants on transfer pricing transactions in manufacturing companies listed on the Indonesia Stock Exchange in the period of 2014-2018.The sample of this research is manufacturing companies listed on the Indonesia Stock Exchange in the period 2014-2018. By using purposive sampling method which consists of 6 companies. The data used in the form of financial statements with multiple regression analysis methods are processed using SPSS 23. The results of the study that the bonus mechanism affected the transfer pricing transaction with a significant value of 0.002, tunneling incentive affected the transfer pricing transaction, with a significant value of 0.004 and the debt covennat had no effect on the transfer pricing transaction with a significant value of 0.153.

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Gözlügöl, Alperen Afşin. "Controlling Tunnelling through Lending Arrangements: The Disciplining Effect of Lending Arrangements on Value-Diversion, Its Limits and Implications." European Business Law Review 33, Issue 1 (February 1, 2022): 125–74. http://dx.doi.org/10.54648/eulr2022004.

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The practices of corporate controllers to divert company value to themselves at the expense of (minority) shareholders and creditors (tunnelling) present a continuing challenge for lawmakers to address. While there is a variety of ways to control selfdealing in public companies, one less studied and appreciated lever against valuediversion is the role of lenders of such companies. This article examines the lending arrangements and common contractual provisions (undertakings, (non-)financial covenants, restrictions), and argues that such arrangements have considerable potential to monitor, deter and restrain value-diversion via self-dealing in the debtor companies. Likely limits to such a potential, and various important factors are also examined. The study concludes with possible implications of such findings. Tunnelling, self-dealing, related party transactions, value-diversion, creditor protection, lending arrangements, covenants, debtor companies, lenders, creditor discipline

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Lê Vũ Ngọc, Thanh, Bích Phạm Thị Ngọc, Uyên Nguyễn Đình Hoàng, and Nguyên Lê Thành Thái. "The Determination of Pressures toward Fraudulent Behavior on Financial Statements of Vietnamese Listed Companies." JOURNAL OF ASIAN BUSINESS AND ECONOMIC STUDIES 33, no. 8 (August 1, 2022): 121–40. http://dx.doi.org/10.24311/jabes/2022.33.08.08.

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The study focuses on understanding the pressures leading to fraudulent behavior on the financial statements of companies listed on the Vietnamese stock markets. First, the study identifies the pressures affecting fraudulent financial reporting behavior one by one, then turn to the interactive effects of the pressures on the behavior of corporate. The regression results of 2831 samples from 2014 to 2020 show that the pressure of maintaining the position of a large enterprise, the pressure of strictly complying with debt covenants, a profit pressure or reward incentive make managers commit financial statement fraud, and, if an enterprise is under a plethora of pressures at the same time, it will increase the fraudulent financial reporting behavior.

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Chava, Sudheer, Rui Wang, and Hong Zou. "Covenants, Creditors’ Simultaneous Equity Holdings, and Firm Investment Policies." Journal of Financial and Quantitative Analysis 54, no. 2 (September 7, 2018): 481–512. http://dx.doi.org/10.1017/s002210901800090x.

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This article analyzes how creditors’ simultaneous debt and equity holdings affect firm investment policies. We find that firms with dual ownership are less likely to have capital expenditure restrictions in loan contracts, and the relation varies in predicted ways with the monitoring needs of borrowers and the monitoring capacity of dual owners. A less frequent use of capital expenditure restrictions, however, does not result in borrowers’ risk-shifting. Dual ownership firms are also more likely to be granted an unconditional waiver and do not significantly reduce debt issuance or investment expenditures after a financial covenant violation. Our results highlight how dual ownership can help mitigate shareholder–creditor conflicts.

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Hong, Hyun A., Mingyi Hung, and Jieying Zhang. "The Use of Debt Covenants Worldwide: Institutional Determinants and Implications on Financial Reporting." Contemporary Accounting Research 33, no. 2 (August 29, 2015): 644–81. http://dx.doi.org/10.1111/1911-3846.12169.

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da Conceição de Oliveira, Willams, and Danilo Soares Monte-Mor. "The Influence of the Organizational Life Cycle on the Violation of Financial Covenants." Review of Business Management 24, no. 4 (2022): 708–22. http://dx.doi.org/10.7819/rbgn.v24i4.4204.

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Pramono Sari, Maylia, Alfan Budiarto, Surya Raharja, Nanik Sri Utaminingsih, and Risanda A. Budiantoro. "The determinant of transfer pricing in Indonesian multinational companies: Moderation effect of tax expenses." Investment Management and Financial Innovations 19, no. 3 (September 13, 2022): 267–77. http://dx.doi.org/10.21511/imfi.19(3).2022.22.

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In calculating the transfer price of a transaction for goods, services, intangible assets, or financial transactions, a corporation has a policy known as transfer pricing. Due to its widespread abuse, transfer pricing is frequently associated with negative connotations. For example, this practice manipulates prices so that it has the potential to harm state revenues. This study uses tax expenses as a moderating variable to evaluate how intangible assets, debt covenants, and bonus systems affect the company’s decisions to use transfer pricing. This paper uses quantitative research approach with multiple linear regression analysis. The data used are panel data, consisting of cross-section data from 23 international manufacturing businesses on the Indonesian Stock Exchange, and time-series data from 2017 to 2019. Based on the tests, only the debt covenant variable significantly positively affects the transfer pricing action (sig. 0.000). In contrast, the intangible asset and the bonus mechanism variables are insignificant for transfer pricing. Furthermore, tax charges cannot mitigate the impact of intangible assets on transfer pricing decisions. However, tax charges may be able to mitigate the debt covenant in a way that makes the company’s decision to use transfer pricing stronger (sig. 0.024). Additionally, the bonus mechanism may be negatively moderated by tax expenses, weakening the company’s decisions to use transfer pricing (sig. 0.045).

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Faircloth, Archie. "THE IMPORTANCE OF ACCOUNTING TO THE SHAKERS." Accounting Historians Journal 15, no. 2 (September 1, 1988): 99–129. http://dx.doi.org/10.2308/0148-4184.15.2.99.

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A desire to be self-sustaining and a dedication to communal property required the Shakers to place great importance on accounting. This importance was underscored by the fact that the spiritual covenants of the Shakers were revised to require accounting procedures and policies including an annual audit. The Shakers circulated manuscripts concerning bookkeeping, and recorded transactions and events in three types of journals: financial, “family,” and spiritual. The Shakers also prepared financial reports. Temporal transactions were a means of maintaining the “gospel order” which elevated accounting procedures to a means of creating and protecting consecrated property.

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Burns, Clare D., Gisele J. Moss, and Jimmy D. Moss. "Instructional Case: Java & Holes." Journal of Business Case Studies (JBCS) 5, no. 3 (June 24, 2011): 27. http://dx.doi.org/10.19030/jbcs.v5i3.4704.

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The primary subject matter of this case concerns a review of earnings per share, ratio analysis, and cost of capital concepts. A secondary issue includes evaluation of alternative strategies within the constraints of debt covenants. The case was designed to use as a review of financial accounting concepts in a MBA managerial accounting course. However, the case has a difficulty level appropriate for seniors or first or second year graduate students. The case is designed as a review and should be completed entirely outside of class. Depending on financial background, students will require approximately ten to fifteen hours to complete the case.

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Huyghebaert, Nancy, and Frederik J. Mostert. "Rationale of securities and covenants in venture capital contracts: an application to South Africa." Corporate Ownership and Control 5, no. 4 (2008): 15–25. http://dx.doi.org/10.22495/cocv5i4p2.

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Venture capitalists are investing their money in portfolio enterprises and hence are putting their capital at risk. As portfolio enterprises may pursue different objectives than those of their financiers, venture capitalists may perceive agency problems as an important risk factor. Venture capitalists can limit the scope of these risks by specifying the form of financing that they provide to portfolio enterprises and/or by inserting particular covenants in their financial contracts. This paper first briefly reviews the various contractual provisions that can be used to decrease the extent of venture capitalists’ exposure to agency problems. Next, the importance of various securities and covenants is examined in the context of South Africa, where the venture capital market is still relatively young, but growing. Overall, it is concluded that venture capitalists in South Africa limit their exposure to risk, but in a different manner than is typically done in the USA

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Chen, Po-Chang. "Banks' Acquisition of Private Information about Financial Misreporting." Accounting Review 91, no. 3 (July 1, 2015): 835–57. http://dx.doi.org/10.2308/accr-51222.

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ABSTRACT This study investigates whether banks respond to financial misreporting as the borrowing firms release misstated financial reports, i.e., in the misreporting period. Drawing upon finance theory that recognizes banks' superior information access and processing abilities, this study predicts and finds that banks adjust loan contract terms in response to the ongoing misreporting. Compared with loans issued in the prior period, loans issued in the misreporting period have higher interest spread, are more likely to be secured by collateral, and have more restrictive covenants. Further analyses show that banks acquire indirect, rather than direct, information about the misreporting and that they do not fully adjust loan pricing until after the restatement announcement. Together, these findings suggest that banks make timely, but insufficient, adjustments during the misreporting period. Nevertheless, banks' early reactions appear to be unique, as equity investors do not respond to the ongoing misreporting, but react to the loan information when it becomes public. JEL Classifications: D82; G21; M41.

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Jouffray, Jean-Baptiste, Beatrice Crona, Emmy Wassénius, Jan Bebbington, and Bert Scholtens. "Leverage points in the financial sector for seafood sustainability." Science Advances 5, no. 10 (October 2019): eaax3324. http://dx.doi.org/10.1126/sciadv.aax3324.

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Can finance contribute to seafood sustainability? This is an increasingly relevant question given the projected growth of seafood markets and the magnitude of social and environmental challenges associated with seafood production. As more capital enters the seafood industry, it becomes crucial that investments steer the sector toward improved sustainability, as opposed to fueling unsustainable working conditions and overexploitation of resources. Using a mixed-methods approach, we map where different financial mechanisms are most salient along a seafood firm’s development trajectory and identify three leverage points that can redirect capital toward more sustainable practices: loan covenants, stock exchange listing rules, and shareholder activism. We argue that seafood sustainability requirements need to be integrated into traditional financial services and propose key research avenues for academic, policy, and practice communities. While our study focuses on the role of finance in seafood sustainability, the insights developed are also of high relevance to other extractive industries.

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Zhang, Yinghong, Fang Sun, and Chunwei Xian. "Does auditor industry expertise affect bank loan costs?" Managerial Auditing Journal 32, no. 3 (March 6, 2017): 295–324. http://dx.doi.org/10.1108/maj-07-2015-1230.

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Purpose This paper aims to examine whether firms retaining industry-specialist auditors receive better price and non-price terms for bank loans. Design/methodology/approach Based on a sample of companies retaining big N auditors during the 2000-2010 period, this paper constructed six proxies for auditor industry expertise and tested three major loan terms: loan spreads, number of general and financial covenants and requirements for collateral. Findings It was found that companies retaining industry-specialist auditors receive lower interest rates and fewer covenants. Banks are also less likely to demand secured collateral. These findings are supported by several sensitivity tests. Research limitations/implications The findings suggest that auditor industry expertise provides incremental value to creditors and that bank loan cost is one economic benefit for companies hiring specialist auditors. Originality/value To the best of the authors’ knowledge, this study is the first to investigate the impact of auditor industry expertise on the cost of private debts.

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Journal articles on the topic 'Financial covenants'

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