Evidence on the determinants and economic consequences of delegated monitoring
We 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.
Volume (Year): 53 (2012)
Issue (Month): 3 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/jae|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
- Siew Hong Teoh & Ivo Welch & T.J. Wong, 1998. "Earnings Management and the Long-Run Market Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 53(6), pages 1935-1974, December.
- Stanley D. Longhofer & Joao A.C. Santos, 2003. "The Paradox of Priority," Financial Management, Financial Management Association, vol. 32(1), Spring.
- Larcker, David F. & Rusticus, Tjomme O., 2010. "On the use of instrumental variables in accounting research," Journal of Accounting and Economics, Elsevier, vol. 49(3), pages 186-205, April.
- Fama, Eugene F, 1990. "Contract Costs and Financing Decisions," The Journal of Business, University of Chicago Press, vol. 63(1), pages 71-91, January.
- Berger, Philip G. & Ofek, Eli & Swary, Itzhak, 1996. "Investor valuation of the abandonment option," Journal of Financial Economics, Elsevier, vol. 42(2), pages 257-287, October.
- Ivashina, Victoria, 2009. "Asymmetric information effects on loan spreads," Journal of Financial Economics, Elsevier, vol. 92(2), pages 300-319, May.
- Fama, Eugene F. & French, Kenneth R., 1997. "Industry costs of equity," Journal of Financial Economics, Elsevier, vol. 43(2), pages 153-193, February.
- Dechow, Patricia & Ge, Weili & Schrand, Catherine, 2010. "Understanding earnings quality: A review of the proxies, their determinants and their consequences," Journal of Accounting and Economics, Elsevier, vol. 50(2-3), pages 344-401, December.
- Datta, Sudip & Iskandar-Datta, Mai & Patel, Ajay, 1999. "Bank monitoring and the pricing of corporate public debt," Journal of Financial Economics, Elsevier, vol. 51(3), pages 435-449, March.
- Booth, James R., 1992. "Contract costs, bank loans, and the cross-monitoring hypothesis," Journal of Financial Economics, Elsevier, vol. 31(1), pages 25-41.
- Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
- Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-1400, September.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eee:jaecon:v:53:y:2012:i:3:p:555-576. 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: (Dana Niculescu)
If references are entirely missing, you can add them using this form.