Large-sample evidence on the debt covenant hypothesis

• 成果类型: Article
• 署名作者: Dichev, ID; Skinner, DJ
• 署名单位: University of Michigan System; University of Michigan
• 刊物名称: JOURNAL OF ACCOUNTING RESEARCH
• ISSN/ISSBN: 0021-8456
• DOI: 10.1111/1475-679X.00083
• 发表日期: 2002
• 页码: 1091-1123
• 关键词: earnings management; accounting choice; INFORMATION; VIOLATIONS; dividend

摘要

We use Dealscan, a database of private corporate lending agreements, to provide large-sample tests of the debt covenant hypothesis. Dealscan offers several advantages over the data available in previous studies, principally larger and more representative samples and the m,,availability of extensive actual covenant detail. These advantages allow us to construct powerful tests in which we find clear support for the debt covenant hypothesis. We also use these data to provide broad evidence on the economic role of debt covenants. We find that private lenders set debt covenants tightly and use them as trip wires for borrowers, that technical violations occur relatively often, and that violations are not necessarily associated with financial distress. Finally, since we measure covenant slack directly, we report evidence that the extensively-used leverage variable is a relatively noisy proxy for closeness to covenants.