The effect of accounting-based debt covenants on equity valuation

• 成果类型: Article
• 署名作者: Core, JE; Schrand, CM
• 署名单位: University of Pennsylvania
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/S0165-4101(98)00043-3
• 发表日期: 1999
• 关键词: earnings response coefficients; capital structure; risk management; Bond covenants; loan industry; stock returns; AGENCY COSTS; determinants; INFORMATION; CONVERSIONS

摘要

We use an option pricing framework to model equity valuation when firms face costs associated with violating accounting-based debt covenants. Our model shows that the value of equity depends on two factors: the economic value of the firm and the probability that the firm violates the covenant. Consistent with the model's prediction that the 'covenant' effect is greatest for firms near covenant violation, we find that responses to earnings that are less informative about future cash flows (losses and transitory earnings) are significant only for thrift institutions that are near violation of regulatory net worth covenants. (C) 1999 Elsevier Science B.V. All rights reserved. JEL classification: G12; G13; G14; G21; M41.