Evidence on the determinants and economic consequences of delegated monitoring
AbstractWe investigate delegated monitoring by examining the determinants and effects of including cross-acceleration provisions in public debt contracts. We find that cross-acceleration provision use depends on borrowers' going concern relative to liquidation values, debt repayment structures, credit quality, and financial reporting quality. This suggests that the use of cross-acceleration provisions increases when the costs of cascading defaults are lower, the conflicts between creditor classes are higher, and the benefits of delegating monitoring to banks are higher. We also find a lower interest rate on public debt contracts with cross-acceleration provisions, but the rate reduction depends on borrowers' financial reporting quality.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Accounting and Economics.
Volume (Year): 53 (2012)
Issue (Month): 3 ()
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Web page: http://www.elsevier.com/locate/jae
Contracting; Monitoring; Covenants; Accounting quality; Debt;
Find related papers by JEL classification:
- G30 - Financial Economics - - Corporate Finance and Governance - - - General
- M40 - Business Administration and Business Economics; Marketing; Accounting - - Accounting - - - General
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