Evidence on the determinants and economic consequences of delegated monitoring

Anne Beatty, Scott Liao and Joseph Weber

Journal of Accounting and Economics, 2012, vol. 53, issue 3, 555-576

Abstract: We investigate delegated monitoring by examining the determinants and effects of including cross-acceleration provisions in public debt contracts. We find that cross-acceleration provision use depends on borrowers' going concern relative to liquidation values, debt repayment structures, credit quality, and financial reporting quality. This suggests that the use of cross-acceleration provisions increases when the costs of cascading defaults are lower, the conflicts between creditor classes are higher, and the benefits of delegating monitoring to banks are higher. We also find a lower interest rate on public debt contracts with cross-acceleration provisions, but the rate reduction depends on borrowers' financial reporting quality.

Keywords: Contracting; Monitoring; Covenants; Accounting quality; Debt (search for similar items in EconPapers)
JEL-codes: G30 M40 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:53:y:2012:i:3:p:555-576

DOI: 10.1016/j.jacceco.2011.12.002

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