Use of Debt Covenants in Small Firms

Chenchuramaiah T. Bathala, Oswald D. Bowlin and William P. Dukes
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Chenchuramaiah T. Bathala: Cleveland State University
Oswald D. Bowlin: Emeritus, Texas Tech University
William P. Dukes: Texas Tech University

Journal of Entrepreneurial Finance, 2006, vol. 11, issue 2, 49-72

Abstract: This paper examines the structure of debt covenants in small firms, with emphasis on privately owned firms. It is based on a survey of a large sample of firms drawn from the S&P Register of Corporations. The findings show that debt covenants imposed on small firms differ according to the firm type (privately owned or publicly owned), debt level, the borrowing cost, and the source of financing (bank or other sources). The evidence is generally consistent with the arguments relating to stockholder-bondholder agency cost conflicts and the Costly Contracting Hypothesis of Smith and Warner (1979).

Keywords: Debt; Debt Covenants; Covenants; Small Firm; Small Business (search for similar items in EconPapers)
JEL-codes: G21 M13 (search for similar items in EconPapers)
Date: 2006
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Citations: View citations in EconPapers (5)

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