Debt Contractsin the Presence of Performance Manipulation

Ilan Guttman and Ivan Marinovic
Additional contact information
Ilan Guttman: NYU
Ivan Marinovic: Stanford University

Research Papers from Stanford University, Graduate School of Business

Abstract: Empirical and survey evidence suggest that firms often manipulate reported numbers to avoid debt covenant violations. The theoretical literature, by and large, has ignored the consequences of this phenomenon on debt contracting. Departing from a standard debt financing setting with continuation decisions based on reported contractible signals, we study how firms ability to manipulate reports affect the design of debt contracts. The model generates an array of novel (and perhaps surprising) empirical predictions regarding the optimal covenant, the interest rate, the efficiency of the continuation/liquidation decisions, and the likelihood of covenant violations.

JEL-codes: D82 D86 G30 M12 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-cfn
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.gsb.stanford.edu/gsb-cmis/gsb-cmis-download-auth/429221
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3495

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().