An empirical examination of debt covenant restrictions and accounting-related debt proxies

Duke, Joanne C.; Hunt, Herbert G.

doi:10.1016/0165-4101(90)90041-2

Cited by 224 publications

(120 citation statements)

References 15 publications

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“…Assuming that a venturer's proximity to covenant limits and the cost of violating those covenants are both positively related to its leverage (Duke and Hunt, 1990;Press and Weintrop, 1990), and bearing in mind that the change to proportionate consolidation carries an increase in leverage, a negative relationship between leverage and the choice of proportionate consolidation is predicted. Some studies measure the proximity to covenant limits based on leverage in relative rather than absolute terms (e.g.…”

Section: Debt Contractsmentioning

confidence: 99%

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Lourenço

Curto

2010

European Accounting Review

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This paper examines whether the type of jointly controlled entity influences the management choice to report interests in this kind of joint venture using the equity method or proportionate consolidation. We address this gap in the accounting choice literature by exploiting the UK setting where, due to the transition to IFRS, firms had to change their reporting method for interests in jointly controlled entities from the gross equity method to a similar approach (equity method) or to proportionate consolidation. We support our analysis on the classification of jointly controlled entities proposed by Hennart (1988). We hypothesize that venturers are more likely to change their reporting method to proportionate consolidation when the majority of their jointly controlled entities are cases of Link instead of Scale cooperation. After controlling for several variables, our results are consistent with the predictions and thus suggest that the type of jointly controlled entity plays an important role in the management decision to report interests in jointly controlled entities using the equity method or proportionate consolidation. However, the results also provide empirical evidence supporting the importance of debt covenant costs and monitoring costs in the choice between alternative reporting methods.

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Section: Debt Contractsmentioning

confidence: 99%

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Lourenço

Curto

2010

European Accounting Review

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“…Defond and Jiambalvo (1994) have concluded that as the firm reaches the situation where it cannot fulfill its financial obligations, the earnings management practices increase to enhance the image of the company. Duke and Hunt (1990) have concluded that there is a direct and significant relation between the debt ratio and earnings management practicing.…”

Section: Control Variablesmentioning

confidence: 99%

Does Ownership Structure Affect Jordanian Companies’ Tendency to Practice Earnings Management?

Ramadan

2016

AJFA

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The aim of this paper is to examine the effect of ownership structure on a firm's ability to practice earnings management. To achieve this goal all 77th Jordanian industrial companies listed at Amman Stock Exchange (ASE) for the period 2000-2014 were selected resulting in 1089 firm-year observations. The empirical results suggest that the earnings management practices of Jordanian industrial companies listed at ASE are influenced by the ownership structure. Precisely, the result shows that equity concentration, management ownership and institutional investor equity are associated inversely with the practices of earnings management. Our results are consistent with the Alignment of Interest Hypothesis and the Efficient Monitoring Hypothesis which suggest that large shareholders have less motivation to manipulate earnings, and can reduce the scope of managerial opportunism.

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“…Jensen and Meckling (1976) argue that debt may be a source of agency problem between shareholders and creditors or between managers and shareholders. Debt provides low opportunities for growth and is a proxy for debtcovenants incentives to manipulate (Duke and Hunt, 1990;Daley and Vigeland, 1983). Hence, based on the debt assumption, the more firms are indebted the more likely they are close critical thresholds covenants is high (Saada, 1995).…”

Section: Firm Leveragementioning

confidence: 99%

R D expenditures and earnings targets: evidence from France

Guidara¹

2015

Pressacademia

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Research and development (R&D) investments reduce current-period earnings while the benefits associated with the investments occur in the future. This problem implies an earnings management tool to boost short-term performance. While there is much evidence regarding managerial discretion through R&D capitalization, empirical studies that directly examine managerial discretion through R&D expenditure adjusting have not been widely provided in the European context. This paper seeks to determine if earnings targets influence R&D investment by encouraging R&D cuts after IFRS adoption. Focusing on a French setting, where companies invest heavily in R&D, results show that managers tend to cut the R&D expenditures in order to achieve earnings target. Studying two earnings management incentives: avoidance of losses (positive earnings target) and earnings decreases (positive earning growths target), findings support thresholds assumption and provide evidence on real earnings management through R&D expensing. This empirical research contributes to the literature by providing further evidence that post-FRS, R&D cut is a strategic decision influenced by earnings management to boost performance.

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An empirical examination of debt covenant restrictions and accounting-related debt proxies

Cited by 224 publications

References 15 publications

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Determinants of the Accounting Choice between Alternative Reporting Methods for Interests in Jointly Controlled Entities

Does Ownership Structure Affect Jordanian Companies’ Tendency to Practice Earnings Management?

R D expenditures and earnings targets: evidence from France

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