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The Effects of Dependency on Debt Financing On Financial Reporting Policy: The Case of Greece

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  • Athanasios P. Bellas
  • Christos Tzovas
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    Abstract

    Financial statements information is supposed to influence the credit decisions of credit institutions. Furthermore, debt agreements include terms based upon accounting numbers. Within this context an accounting choice aiming to minimize tax liability might generate significant non-tax costs for a firm. The significance of these costs is conditioned upon the level of dependency of firm on debt financing. This paper examines the arguments that have been developed regarding the association between firm’s leverage ratio and its accounting policy decisions. Given the level of dependency of Greek industrial firms on bank financing it is argued that the above mentioned factors might affect the accounting policy decisions of Greek firms and prompt them to deviate from a tax-reducing policy.

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    File URL: http://www.ersj.eu/repec/ers/papers/08_12_p2.pdf
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    Bibliographic Info

    Article provided by European Research Studies Journal in its journal European Research Studies Journal.

    Volume (Year): XI (2008)
    Issue (Month): 1-2 ()
    Pages: 13-30

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    Handle: RePEc:ers:journl:v:xi:y:2008:i:1-2:p:13-30

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    Web page: http://www.ersj.eu/

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    1. MacKie-Mason, Jeffrey K, 1990. " Do Taxes Affect Corporate Financing Decisions?," Journal of Finance, American Finance Association, vol. 45(5), pages 1471-93, December.
    2. Duke, Joanne C. & Hunt, Herbert III, 1990. "An empirical examination of debt covenant restrictions and accounting-related debt proxies," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 45-63, January.
    3. Press, Eric G. & Weintrop, Joseph B., 1990. "Accounting-based constraints in public and private debt agreements : Their association with leverage and impact on accounting choice," Journal of Accounting and Economics, Elsevier, vol. 12(1-3), pages 65-95, January.
    4. Panayiotis Curtis & Jonh Thalassinos, 2005. "Equity fund raising and “creative” accounting practices: Indications from Athens Stock Exchange for the 1999-2000 period," European Research Studies Journal, European Research Studies Journal, vol. 0(1-2), pages 127-.
    5. DeAngelo, Harry & Masulis, Ronald W., 1980. "Optimal capital structure under corporate and personal taxation," Journal of Financial Economics, Elsevier, vol. 8(1), pages 3-29, March.
    6. Scholes, Myron S & Wilson, G Peter & Wolfson, Mark A, 1990. "Tax Planning, Regulatory Capital Planning, and Financial Reporting Strategy for Commercial Banks," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 625-50.
    7. Bowen, Robert M. & Noreen, Eric W. & Lacey, John M., 1981. "Determinants of the corporate decision to capitalize interest," Journal of Accounting and Economics, Elsevier, vol. 3(2), pages 151-179, August.
    8. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June.
    9. Makridakis, Spyros & Caloghirou, Yannis & Papagiannakis, Lefteris & Trivellas, Panagiotis, 1997. "The dualism of greek firms and management: Present state and future implications," European Management Journal, Elsevier, vol. 15(4), pages 381-402, August.
    10. Dhaliwal, Dan S. & Salamon, Gerald L. & Dan Smith, E., 1982. "The effect of owner versus management control on the choice of accounting methods," Journal of Accounting and Economics, Elsevier, vol. 4(1), pages 41-53, July.
    11. El-Gazzar, Samir & Lilien, Steve & Pastena, Victor, 1986. "Accounting for leases by lessees," Journal of Accounting and Economics, Elsevier, vol. 8(3), pages 217-237, October.
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