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Penn State University

1. Bozanic, Zahn. THE ROLE OF ACCOUNTING-BASED FINANCIAL COVENANTS IN PREVENTING SUBSTANTIVE DEFAULTS OF PUBLIC DEBT.

Degree: 2011, Penn State University

This paper hypothesizes that the presence of accounting-based financial (ABF) covenants in public debt will have an impact on a lender's ability to monitor and the borrower's response to enhanced monitoring, leading to a reduced likelihood of substantive defaults. Because of the relative ease of their monitoring, ABF covenants may serve to increase the frequency of technical defaults. It is hypothesized, however, that this same characteristic of ABF covenants would reduce the likelihood of substantive default since the presence of ABF covenants provides an incentive mechanism for managers of firms to take actions ahead of technical default to prevent acceleration and bankruptcy. The evidence presented is consistent with this hypothesis: the presence of ABF covenants increases the probability of renegotiation and thus reduces the probabilities of substantive default and credit rating downgrade in below investment grade debt. Further, this reduction is positively associated with the extent of the quality of the firm's information environment and financial reporting. Additional evidence provided shows that the presence of ABF covenants reduces initial offering yields. The findings of the paper have implications for public debt contract design and are therefore relevant to contracting parties in terms of i) enhancing the ability of lenders to assess risks and recover investment and ii) lowering the cost of debt and reducing the likelihood of bankruptcy for borrowers. Advisors/Committee Members: Karl A Muller Iii, Dissertation Advisor/Co-Advisor, Dan Givoly, Committee Member, Paul David Fischer, Committee Chair/Co-Chair, Karl A Muller Iii, Committee Chair/Co-Chair, Orie Edwin Barron, Committee Member, Marie Therese Reilly, Committee Member.

Subjects/Keywords: consent solicitations; bonds; covenants; Public debt; contracts; monitoring; renegotiation; default; credit ratings; financial reporting quality

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APA · Chicago · MLA · Vancouver · CSE | Export to Zotero / EndNote / Reference Manager

APA (6th Edition):

Bozanic, Z. (2011). THE ROLE OF ACCOUNTING-BASED FINANCIAL COVENANTS IN PREVENTING SUBSTANTIVE DEFAULTS OF PUBLIC DEBT. (Thesis). Penn State University. Retrieved from https://submit-etda.libraries.psu.edu/catalog/12405

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

Chicago Manual of Style (16th Edition):

Bozanic, Zahn. “THE ROLE OF ACCOUNTING-BASED FINANCIAL COVENANTS IN PREVENTING SUBSTANTIVE DEFAULTS OF PUBLIC DEBT.” 2011. Thesis, Penn State University. Accessed April 11, 2021. https://submit-etda.libraries.psu.edu/catalog/12405.

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

MLA Handbook (7th Edition):

Bozanic, Zahn. “THE ROLE OF ACCOUNTING-BASED FINANCIAL COVENANTS IN PREVENTING SUBSTANTIVE DEFAULTS OF PUBLIC DEBT.” 2011. Web. 11 Apr 2021.

Vancouver:

Bozanic Z. THE ROLE OF ACCOUNTING-BASED FINANCIAL COVENANTS IN PREVENTING SUBSTANTIVE DEFAULTS OF PUBLIC DEBT. [Internet] [Thesis]. Penn State University; 2011. [cited 2021 Apr 11]. Available from: https://submit-etda.libraries.psu.edu/catalog/12405.

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

Council of Science Editors:

Bozanic Z. THE ROLE OF ACCOUNTING-BASED FINANCIAL COVENANTS IN PREVENTING SUBSTANTIVE DEFAULTS OF PUBLIC DEBT. [Thesis]. Penn State University; 2011. Available from: https://submit-etda.libraries.psu.edu/catalog/12405

Note: this citation may be lacking information needed for this citation format:
Not specified: Masters Thesis or Doctoral Dissertation

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