IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Negotiated Measurement Rules in Debt Contracts

Listed author(s):
Registered author(s):

    ABSTRACT This paper investigates contractual definitions of net income and net worth and the cross-sectional variation in definitions of net income in a large sample of private debt contracts to shed light on the debt contracting demand for accounting numbers. The descriptive evidence indicates that removing transitory earnings is one principal concern in the measurement of earnings but not in the measurement of net worth. In the extreme, contracts are never written on comprehensive income as an earnings concept, whereas accumulated other comprehensive income is included in net worth in most contracts. In contrast, conservative adjustment, in the sense of including certain types of negative earnings but not the corresponding positive earnings, does not seem to be a primary consideration in measuring net income and net worth. Cross-sectionally, I find that net income is more likely to be defined differently from the GAAP when net income plays a more important role in a contract, when the loan maturity is longer, and when transitory earnings are less useful for debt contracting. Collectively, the evidence shows that debt contracting parties choose contracting variables in a manner consistent with efficient contracting, and that transitory earnings are relatively less useful in measuring firm performance for debt contracting. Copyright (c), University of Chicago on behalf of the Accounting Research Center, 2010.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Wiley Blackwell in its journal Journal of Accounting Research.

    Volume (Year): 48 (2010)
    Issue (Month): 5 (December)
    Pages: 1103-1144

    in new window

    Handle: RePEc:bla:joares:v:48:y:2010:i:5:p:1103-1144
    Contact details of provider: Web page:

    Order Information: Web:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bla:joares:v:48:y:2010:i:5:p:1103-1144. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

    or (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.