Are Executive Pensions and Deferred Compensation Inside Debt? Evidence from Corporate Private Loan Contracts

SSRN Electronic Journal ◽

10.2139/ssrn.1697855 ◽

2010 ◽

Cited By ~ 1

Author(s):

Divya Anantharaman ◽

Vivian W. Fang ◽

Guojin Gong

Keyword(s):

Deferred Compensation ◽

Loan Contracts ◽

Inside Debt ◽

Private Loan

Download Full-text

Do the Specific Countries in which a Multinational Corporation Operates Affect its Private Loan Contracts?

Journal of Multinational Financial Management ◽

10.1016/j.mulfin.2021.100709 ◽

2021 ◽

pp. 100709

Author(s):

Brandon Ater ◽

Bowe Hansen

Keyword(s):

Multinational Corporation ◽

Loan Contracts ◽

Private Loan

Download Full-text

The Impact of Financial Covenants in Private Loan Contracts on Classification Shifting

Management Science ◽

10.1287/mnsc.2018.3110 ◽

2019 ◽

Vol 65 (8) ◽

pp. 3637-3653 ◽

Cited By ~ 6

Author(s):

Yun Fan ◽

Wayne B. Thomas ◽

Xiaoou Yu

Keyword(s):

Earnings Forecasts ◽

Management Technique ◽

Loan Contracts ◽

Special Items ◽

Classification Shifting ◽

Distressed Firms ◽

Debt Covenant ◽

The Impact ◽

Covenant Violations ◽

Private Loan

This study examines whether firms with private loan contracts that contain debt covenants based on earnings before interest, taxes, depreciation, and amortization (EBITDA) are more likely to misclassify core expenses as special items (i.e., classification shift). Misclassifying core expenses as income-decreasing special items allows the firm to increase EBITDA and thereby potentially avoid debt covenant violations. Consistent with our expectation, firms misclassify core expenses as special items when at least one EBITDA-related financial covenant is close to being violated. In addition, classification shifting is more prominent when financially distressed firms are close to violating at least one EBITDA-related covenant. Whereas prior research on classification shifting focuses primarily on equity market incentives (e.g., meeting analysts’ earnings forecasts), our study extends this research to private loan contracts to highlight that creditors also affect classification shifting. Classification shifting appears to be an additional earnings management technique used by managers to avoid debt covenant violations. This paper was accepted by Shivaram Rajgopal, accounting.

Download Full-text