1.Accounting Research on Debt Contracting（Session 1: Introduction and Agency Theory Perspective；Session 2: Incomplete Contract Theory Perspective；Session 3: Future Directions); 2.Government Customer as Monitor: Evidence from Loan Covenants; 3.Workshop
Saturday, June 25th, 14:00—17:00
Sunday, June 26th, 9:00—12:00
Sunday, June 26th, 14:00—17:00
Monday, June 27th, 10:00—11:30
Location: 301, Western School of Business, Guang Hua Campus
1. This seminar is an introduction to empirical accounting research in the area of debt contracting. The targeted audience is Ph.D. students and faculty members who are interested in research in this area. It may also be of some interest to Ph.D. students and faculty members with research interests in related fields, particularly corporate finance. The course goal will be achieved by providing a thorough introduction to the connections between: (1) the theoretical constructs used to frame the research question being examined, and (2) the method used to address the research question.
2. This study examines how a firm’s business relationship with the U.S. government, in particular, sales to the government, impacts covenant intensity of its loan contract. We argue that lenders benefit from the strict monitoring activities of the government customer and reduce the use of covenants in loan contracts when the borrowing firm has a government customer. Consistent with this argument, we find strong evidence that a loan contract contains significantly fewer covenants when the borrowing firm reports a major government customer. In contrast, we do not find such an effect for a firm that has a major corporate customer. We document similar results for the use of performance pricing provision, but not for loan spread and security, which suggests that the documented effect of a major government customer on covenant intensity is unlikely to be driven by sales to the government reducing the borrowing firm’s operating risk.