The Use of Debt Covenants Worldwide: Institutional Determinants and Implications on Financial Reporting

• 成果类型: Article
• 署名作者: Hong, Hyun A.; Hung, Mingyi; Zhang, Jieying
• 署名单位: University of California System; University of California Riverside; Hong Kong University of Science & Technology; University of Texas System; University of Texas Dallas
• 刊物名称: CONTEMPORARY ACCOUNTING RESEARCH
• ISSN/ISSBN: 0823-9150
• DOI: 10.1111/1911-3846.12169
• 发表日期: 2016
• 页码: 644-681
• 关键词: ACCOUNTING CONSERVATISM; Ownership structure; Creditor rights; PRIVATE CREDIT; Bond covenants; LOAN MARKET; bank loans; ENFORCEMENT; CONTRACTS; COSTS

摘要

This study investigates how the use of debt covenants around the world varies with legal institutions. On the basis of syndicated loans in 36 countries, we find that debt covenants are more prevalent in countries with stronger law enforcement and weaker creditor rights, suggesting that law enforcement facilitates, and creditor rights substitute for, the use of covenants. We also find that the substitution effect between covenant use and creditor rights exists mainly in countries with strong law enforcement, and the effect of legal institutions on covenants is primarily driven by covenants that preserve seniority and capital. In addition, timely loss recognition increases with the use of debt covenants and strong creditor rights attenuate this relation. Overall, our study is the first to provide comprehensive evidence on how the use of debt covenants responds to legal institutions and how it bridges the previously documented link between legal institutions and accounting conservatism.