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What do we know about the role of financial reporting in debt contracting and debt covenants?

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  • Peter Taylor

Abstract

The paper examines the role of financial reporting in debt contracting and in particular focuses on the definition, measurement, and monitoring of accounting-based covenants used to manage agency relationships arising from borrowing by firms. The paper also reviews research in areas of financial reporting where the presence of accounting-based covenants provides incentives to managers, notably choice of accounting method, lobbying on standard setters' proposals, and accounting earnings management. Although US dominated and latterly increasingly focused on large datasets and quantitative and analytical methods, relevant research is available from a range of methodologies and countries and the paper reflects this variety and identifies both inter-jurisdictional differences and inter-temporal changes in debt contracting practices. Despite the extensive research which is reviewed important areas for new research remain.

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  • Peter Taylor, 2013. "What do we know about the role of financial reporting in debt contracting and debt covenants?," Accounting and Business Research, Taylor & Francis Journals, vol. 43(4), pages 386-417, August.
    • Handle: RePEc:taf:acctbr:v:43:y:2013:i:4:p:386-417
    DOI: 10.1080/00014788.2013.798551
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    1. J. A. Donaldson & T. H. Donaldson, 1982. "The Medium-Term Loan Market," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-06242-3, September.
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    Cited by:

    1. Arnold Schneider, 2021. "Does knowledge about a borrowing firm’s internal audit influence bank lending decisions?," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 18(3), pages 304-314, September.
    2. Saumya Jain & Chandra Prakash Gupta, 2023. "A Study of Impact of IFRS Convergence in India on Debt–Equity Components of Financial Statements," Global Business Review, International Management Institute, vol. 24(5), pages 933-952, October.
    3. Kusano, Masaki & Sakuma, Yoshihiro & Tsunogaya, Noriyuki, 2016. "Economic consequences of changes in the lease accounting standard: Evidence from Japan," Journal of Contemporary Accounting and Economics, Elsevier, vol. 12(1), pages 73-88.
    4. Arnold Schneider, 2018. "Financial expertise on audit committees of loan applicants: a research note to test the effects on lending decisions," Accounting and Business Research, Taylor & Francis Journals, vol. 48(2), pages 225-235, February.
    5. Nicola Moscariello & Len Skerratt & Michele Pizzo, 2014. "Mandatory IFRS adoption and the cost of debt in Italy and UK," Accounting and Business Research, Taylor & Francis Journals, vol. 44(1), pages 63-82, February.
    6. Intan Suryani Abu Bakar & Arifur Khan & Paul Mather & George Tanewski, 2020. "Board monitoring and covenant restrictiveness in private debt contracts during the global financial crisis," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(S1), pages 661-692, April.

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