Further Evidence on Consequences of Debt Covenant Violations

被引:29
作者
Gao, Yu [1 ]
Khan, Mozaffar [2 ,3 ]
Tan, Liang [4 ]
机构
[1] Univ St Thomas, St Paul, MN 55105 USA
[2] Harvard Univ, Cambridge, MA 02138 USA
[3] Univ Minnesota, Minneapolis, MN 55455 USA
[4] George Washington Univ, Washington, DC 20052 USA
关键词
ECONOMIC CONSEQUENCES; CONTROL RIGHTS; PRICE DELAY; INFORMATION; FIRM; COSTS; SIZE;
D O I
10.1111/1911-3846.12303
中图分类号
F8 [财政、金融];
学科分类号
0202 ;
摘要
We present new evidence on debt covenant violation (DCV) consequences that have not previously been examined in the literature. In particular, we show that a DCV triggers significant information asymmetry and uncertainty on the part of shareholders and auditors as reflected in higher bid-ask spreads, return volatility, and audit fees. Further, these consequences occur even when lender-imposed costs are relatively lower, consistent with the act of default itself triggering shareholder and auditor uncertainty. The results highlight costs to the firm of having bright-line rules in contracts, and add to an understanding of the consequences of DCVs.
引用
收藏
页码:1489 / 1521
页数:33
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