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The purpose of this paper is to investigate the relationship between restrictive covenants and accounting conservatism. More specially, the authors try to explain how the use of restrictive covenants of public debt may affect accounting conservatism.

The sample is composed of non-financial firms and for each firm one debt contract is considered. The authors have used the Ball and Shivakumar (2005) models to test the relationships. All variables were retrieved from Mergent Fixed Investment Securities and COMPUSTAT Databases.

The findings of this study show that the more the firm relies on bond covenants, the higher is the degree of conservatism. The authors found also that these firms also exhibited a widely significantly increased level of conservatism in the years following the issuance of debt.

The results should be interpreted with caution because the use of covenants does not take into consideration the tightness of their inclusion in the public debt contract.

This paper makes a timely contribution to the debate of timely loss recognition by confirming the complementarity between the inclusion of restrictive covenants in the debt agreement and the accounting conservatism before and after the emission of public debt.

Recent studies on the use of private, non-bank, debt have given conflicting results. Instead of a fixed order of preference between various choices of debt as suggested by previous studies, this study postulates that there is a life cycle of debt choice, and as firms move through the cycle, their preferences change. For stable, mature firms, when given a choice, non-bank private debt would fall in between the two extremes of bank debt and public debt. We provide empirical as well as anecdotal evidence from the trade press to support this view. We jointly model the decision to choose a debt source as well as the amount of debt on data from a current database to focus on the “intentional” change in debt levels, rather than those due to unintentional changes. We find that there are significant interdependencies between the decision to borrow from a particular source, as well as the amount of loan, and that taxes, as well as lender reputation, degree of renegotiability and financial flexibility required by the borrower, are key factors that influence the choice of private debt source.

This paper aims to examine how a firm’s customer concentration, which is the amount of sales between a supplier firm and the major customers, affects corporate bond contracts. This study also investigates how the types of customer concentration have a significant impact on bond contracts.

The research uses the Compustat’s segment customer database and the Mergent fixed income securities database, which provides details about publicly offered US bond issues and issuers. The sample also includes the US Congressional committees’ data from the 96th to 115th congresses. To control any endogenous concerns, the author uses changes in the seniority of US senators on powerful committees and the American Recovery and Reinvestment Act of 2009 (ARRA) as exogenous shocks. For a robustness test, the author also uses the propensity score-matched pairs.

While higher customer concentration, on average, leads to higher yield spreads and strict covenants, firms that have the US Government as a major customer pay lower yield spreads and have higher issue ratings. However, as a firm’s sales depend too heavily on the US Government customer channel, the bond issuance is likely to have lower issue ratings. The main findings also show that firms with government concentrations take advantage of political links, leading to lower yield spreads after two exogenous events.

The findings in this paper show the importance of a firm’s customer types in bond markets by emphasizing the positive impact of the US Government as the sales channel. Exogenous event studies based on the propensity-matched sample alleviate the endogenous concerns.

This study aims to interrogate dynamic asymmetric relationships between public debt and economic growth in Southern African Developing Communities (SADC), over the period 2000–2018.

The study employed a panel smooth transition regression (PSTR) technique to analyse dynamic asymmetric relationships between public debt and economic growth, and the threshold effect at which public debt hampers economic growth.

The findings indicate that there is a significant nonlinear effect of debt on economic growth in SADC. The study discovered a debt threshold of 60% to GDP at which debt beyond this threshold deteriorates long-term growth. The low-debt regime was found to be positive and statistically significant, while the high-debt regime is detrimental for long-term growth. Fiscal policymakers ought to consider the adoption of well-coordinated debt policies that aims to strike a balance between sustainable public debt and economic growth, within a reasonable threshold target.

The study focusses on asymmetric and threshold analysis of public debt on economic growth in SADC using sophisticated panel smooth transition regression (STAR). This study provides rigorous empirical evidence within the SADC perspective in which previous studies have predominantly been confined in advanced economies.

The purpose of this paper is to review monetary policy options in countries assumed to be suffering from two common economic problems: deficient private demand and high and rising public debt.

The analytical approach assumes that relevant authorities have decided that new money creation is necessary to address their economic problems. The paper asks the question: how should this new money creation best be deployed to create the required economic stimulus in the context of rising public debt?

The first finding is that the latest rounds of “quantitative easing” in the USA (QE2) and Japan are likely to be inefficient, largely ineffective and have adverse side‐effects, and that in periphery countries the risk of debt default is being increased by current defensive policy settings. The second finding is that the policy of financing budget deficits by printing new money is likely to be more effective (than “quantitative easing” and current Eurozone policy) in raising demand, output and employment without adding unnecessarily to already high levels of public debt.

There are very substantial practical policy implications, involving a potential change of monetary policy strategies for two of the world's largest economies and for Eurozone periphery countries. Post‐earthquake reconstruction in Japan could be financed in the manner recommended in this paper.

The originality/value lies in demonstrating that current monetary policy orthodoxy is misplaced, and that an alternative policy strategy has been overlooked and is likely to be more effective.

This study aims to examine the association between fair value accounting and the cost of corporate bonds, proxied by bond yield spread. In addition, this study explores the moderating role of auditor industry expertise at both the national and the city levels.

This study first examines the effect of the use of fair value on yield spread by estimating firm-level regression model, where fair value is the testing variable and yield spread is the dependent variable. To test the differential impact of the three levels of fair value inputs, this paper divides the fair value measures based on the three-level hierarchy, Level 1, Level 2 and Level 3, and replace them as the test variables in the regression model.

This study finds that the application of fair value accounting is generally associated with a higher bond yield spread, primarily driven by Level 3 estimates. The results also show that national-level auditor industry expertise is associated with lower bond yield spreads for Level 1 and Level 3 fair value inputs, whereas the impact of city-level auditor industry expertise on bondholders is mainly on Level 3 fair value inputs.

The paper innovates by exploring the impact of fair value accounting in a setting that extends beyond financial institutions, the traditional area of focus. Moreover, most prior research considers private debt, whereas this study examines public bonds, for which investors are more likely to rely on financial reporting for their information about a firm. Finally, the study differentiates between city- and national-level industry expertise in examining the role of auditors.

This research has several practical implications. First, firms seeking to raise debt capital should consider involving auditors, with either industry expertise or fair value expertise, due to the roles that auditors play in safeguarding the reliability of fair value measures, particularly for Level 3 measurements. Second, from standard-setting and regulatory perspectives, the study’s findings that fair value accounting is associated with higher bond yield spread cast further doubt on the net benefits of applying a full fair value accounting regime. Third, PCAOB may consider enhancing guidance to auditors on Level 2 fair value inputs, to further enhance audit quality. Finally, creditors can be more cautious in interpretating accounting information based on fair value while viewing the employment of auditor experts as a positive signal.

First, the paper extends research on the role of accounting information in public debt contracting. Second, this study adds to the auditing literature about the impact of industry expertise. Finally, and more generally, this study adds to the ongoing controversy on the application of fair value accounting.

This paper aims to examine how a firm’s political party orientation (Republican or Democratic), which is measured as the composite index based on the political party leanings of top managers, affects bank loan contracts. This study also investigates how the political culture of local states has a significant impact on loan contracts.

This research uses various databases including the Loan Pricing Corporation’s DealScan database, financial covenant violation indicators based on the Securities and Exchange Commission (SEC) filings, firm bankruptcy filings and political culture index data to examine the impact of political orientation on the cost of debt. This paper also includes the state level of gun ownership and bachelor’s degrees to investigate how local political culture affects the loan contract. To control endogenous concerns, this paper uses an instrumental variable analysis.

Firms that have Republican-oriented political identities pay lower yield spreads for the main costs of debt including all-in-spread-drawn and all-in-spread-undrawn. This pattern is consistent with other fees of bank loans. This paper finds that an increase in conservative political policies toward Republican orientations is negatively associated with the cost of debt. The main findings also show that the political culture in the state where the headquarters of the borrowing firm are located plays an important role in bank loan contracts.

The findings in this paper provide evidence that a firm’s political party orientation significantly affects the loan contract terms in both pricing and non-pricing terms. To the best of the author’s knowledge, this is the first study that shows the importance of political party identification on loan contracts by separating the sample into Republican, neutral and Democratic.

This study examines how creditor interventions after debt covenant violations affect corporate tax avoidance. Using a regression discontinuity design, we find that creditor interventions increase borrowers' tax avoidance. This effect is concentrated among firms with weaker shareholder governance before creditor interventions and among those with less bargaining power during subsequent debt renegotiations. Our results indicate that creditors play an active role in shaping corporate tax policy outside of bankruptcy.

Explains the concept of the investment set (IOS: i.e. chances to invest for expansion, new products, cost reduction etc.) and its effects on firm value. Reviews previous research on the theoretical relationships between IOS and optimal contracting resulting from shareholder/debtholder conflict, agency costs and performance measurement problems; and empirical research on its links with company policy on financing, dividends and compensation. Goes on to discuss research on measuring IOS by using various proxies; and summarizes the main findings.

This paper examines the controversy surrounding the use of the Inverted‐Sum‐Of‐Years‐Digits (ISOYD) method of goodwill amortisation and events leading to its banning by the Australian accounting regulatory bodies. Companies using the method claimed that a prohibition would reduce their share price and international competitiveness. On the other hand, efficient capital market proponents argued that the amortisation method was irrelevant to the economic position of a firm in the absence of any cash flow effects. This paper discusses these conflicting views and investigates possible motives for the choice of goodwill amortisation method through a cross‐company analysis of key characteristics. In addition, sharemarket reaction to key events leading to the change of policy was examined using conventional event‐study methodology. The cross‐company analysis revealed significant differences in the goodwill characteristics between ISOYD companies and non‐ISOYD companies which may have motivated their choice. The result of the event‐study found that no significant abnormal return could be unequivocally attributed to any of the key events or announcements.