Accounting and non-accounting based information in the market for debt: evidence from Australian private debt contracts
Article Abstract:
This paper examines accounting and non-accounting based restrictive covenants in Australian private debt agreements. With respect to the former, our findings differ from previous research on public debt. We find more varied definitions of constraints and their specified tightness in private debt contracts than in public debt contracts. Further, limits on interest cover are found to be continuing constraints and not 'once-off' limits. The paper reports frequent use of more specific or 'tailored' accounting based constraints and the frequent inclusion of off-balance sheet numbers in the measurement rules specified. The paper also provides the first Australian evidence on the use of non-accounting based constraints. These are pervasive and cover a wide range of corporate activity. While largely consistent with previous research the paper also reports evidence of restrictions previously argued to be sub-optimal and hence, unlikely to be observed. Specifically, there are frequent restrictions on firms' production and investment policies. (Reprinted by permission of the publisher.)
Publication Name: Accounting and Finance
Subject: Business
ISSN: 0810-5391
Year: 1998
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The information environment and the ability of logit-based financial statement analysis to predict abnormal returns
Article Abstract:
Holthausen and Larcker (1992) show that logit-based financial statement analysis can predict abnormal returns on investments in equity securities. We argue that if this success of financial statement analysis is due to market inefficiency, then the procedure should work better for small firms than larger firms, where firm-size proxies for the amount of information processing in the firm's information environment. We do not find greater predictable hedge portfolio returns associated with the analysis of small-firm financial statements. Thus, our results conflict with the market inefficiency explanation. Our results are more consistent with financial statement analysis providing summary information about expected returns not subsumed by other risk proxies and not accounted for in the researcher's definition of abnormal returns. (Reprinted by permission of the publisher.)
Publication Name: Accounting and Finance
Subject: Business
ISSN: 0810-5391
Year: 1998
User Contributions:
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