Creditor control rights, state of nature verification, and financial reporting conservatism

• 成果类型: Article
• 署名作者: Tan, Liang
• 署名单位: George Washington University
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/j.jacceco.2012.08.001
• 发表日期: 2013
• 关键词: ACCOUNTING CONSERVATISM; incomplete contracts; earnings management; capital structure; balance-sheet; BONUS SCHEMES; debt; INFORMATION; Timeliness; INVESTMENT

摘要

I examine the impact of state-contingent allocation of creditor control rights on financial reporting. Using a discontinuity analysis, I find that firms' financial reporting becomes more conservative immediately after covenant violations and this effect persists for at least eight quarters. The conservatism effect is more pronounced when creditors possess greater bargaining power, when firms' operations are more volatile, and when creditors put Chief Restructuring Officers in place. My findings identify a specific channel through which debt financing shapes corporate financial reporting and provide direct evidence supporting the debt contracting explanation for conservatism posited in Watts (2003). (C) 2012 Elsevier B.V. All rights reserved.