IDEAS home Printed from https://ideas.repec.org/a/wly/coacre/v33y2016i2p644-681.html
   My bibliography  Save this article

The Use of Debt Covenants Worldwide: Institutional Determinants and Implications on Financial Reporting

Author

Listed:
  • Hyun A. Hong
  • Mingyi Hung
  • Jieying Zhang

Abstract

This study investigates how the use of debt covenants around the world varies with legal institutions. On the basis of syndicated loans in 36 countries, we find that debt covenants are more prevalent in countries with stronger law enforcement and weaker creditor rights, suggesting that law enforcement facilitates, and creditor rights substitute for, the use of covenants. We also find that the substitution effect between covenant use and creditor rights exists mainly in countries with strong law enforcement, and the effect of legal institutions on covenants is primarily driven by covenants that preserve seniority and capital. In addition, timely loss recognition increases with the use of debt covenants and strong creditor rights attenuate this relation. Overall, our study is the first to provide comprehensive evidence on how the use of debt covenants responds to legal institutions and how it bridges the previously documented link between legal institutions and accounting conservatism.

Suggested Citation

  • Hyun A. Hong & Mingyi Hung & Jieying Zhang, 2016. "The Use of Debt Covenants Worldwide: Institutional Determinants and Implications on Financial Reporting," Contemporary Accounting Research, John Wiley & Sons, vol. 33(2), pages 644-681, June.
    • Handle: RePEc:wly:coacre:v:33:y:2016:i:2:p:644-681
    DOI: 10.1111/1911-3846.12169
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1911-3846.12169
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1911-3846.12169?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Takuma Kochiyama & Ryosuke Nakamura & Akinobu Shuto, 2021. "How do bank lenders use borrowers’ financial statements? Evidence from a survey of Japanese banks," CARF F-Series CARF-F-522, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    2. Chao‐Jung Chen & Wen He & Chien‐Ju Lu & Xin Yu, 2022. "Bank loan covenants, accrual quality and firms’ information environment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(1), pages 547-575, March.
    3. Chy, Mahfuz & Kyung, Hoyoun, 2023. "The effect of bond market transparency on bank loan contracting," Journal of Accounting and Economics, Elsevier, vol. 75(2).
    4. Takuma Kochiyama & Ryosuke Nakamura, 2021. "Debt covenants in Japanese loan markets: in comparison with the traditional relationship banking," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 61(1), pages 305-334, March.
    5. Colleen Honigsberg & Sharon P. Katz & Sunay Mutlu & Gil Sadka, 2021. "State contract law and the use of accounting information in debt contracts," Review of Accounting Studies, Springer, vol. 26(1), pages 124-171, March.
    6. Li, Xi & Lou, Yun, 2024. "Foreign institutional ownership and cross-border lending," LSE Research Online Documents on Economics 124422, London School of Economics and Political Science, LSE Library.
    7. L ' Effet & Yao Maurice & Yves Mard & Éric Séverin, 2020. "The Effect of Earnings Management on Debt Maturity: An International Study," Post-Print hal-03029366, HAL.
    8. Albanez, Tatiana & Schiozer, Rafael, 2022. "The signaling role of covenants and the speed of capital structure adjustment under poor creditor rights: Evidence from domestically and cross-listed firms in Brazil," Journal of Multinational Financial Management, Elsevier, vol. 63(C).
    9. Ruhnke, Carsten S., 2022. "Implications of the Creditors' Influence on Corporate Decisions," Junior Management Science (JUMS), Junior Management Science e. V., vol. 7(1), pages 150-184.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:coacre:v:33:y:2016:i:2:p:644-681. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1911-3846 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.