The Role of Accounting Information in Optimal Debt Contracts with Informed Lenders

• 成果类型: Article
• 署名作者: Darrough, Masako N.; Deng, Mingcherng
• 署名单位: City University of New York (CUNY) System; Baruch College (CUNY)
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/accr-52313
• 发表日期: 2019
• 页码: 165-200
• 关键词: conservatism; DESIGN

摘要

We analyze the role of accounting information in debt contracting when the lender has private information that can assist in the borrower's investment decision. The lender might have acquired private information during the due diligence process or via past lending relationships. We show that the borrower has a stronger incentive to engage in a suboptimal investment decision (i.e., asset substitution) ex post when the lender lacks incentive to truthfully reveal this information. We identify conditions under which, ex ante, the borrower can incorporate accounting signals in the debt contract to mitigate the effect of the lender's private information and improve the borrower's investment efficiency. Our analysis offers an alternative explanation for the use of performance pricing in debt contracts.