The impact of debt covenants on earnings announcement returns

2021 ◽  
pp. 1-17
Author(s):  
Evrim Akdogu ◽  
Yigit Atilgan
Keyword(s):  
Debt Covenants ◽  
Earnings Announcement ◽  
Announcement Returns ◽  
The Impact

The Relation between Accounting Information in Debt Covenants and Operating Leases

2015 ◽  
Vol 29 (4) ◽  
pp. 969-996 ◽  
Author(s):  
Daniel Gyung H. Paik ◽  
Joyce A. van der Laan Smith ◽  
Brandon Byunghwan Lee ◽  
Sung Wook Yoon
Keyword(s):  
Balance Sheet ◽  
Accounting Information ◽  
Debt Covenants ◽  
Debt Contracts ◽  
Debt Contracting ◽  
Income Statement ◽  
Operating Leases ◽  
The Impact ◽  
Accounting Ratios ◽  
Lease Accounting

SYNOPSIS Proposed changes by the FASB and the IASB to lease accounting standards will substantially change the accounting for operating leases by requiring the capitalization of future lease payments. We consider the impact of these changes on firms' debt covenants by examining the frequency of income-statement- versus balance-sheet-based accounting ratios in debt covenants of firms in high and low Off Balance Sheet (OBS) lease industries. Based on debt contracts from the 1996–2009 period, our results provide evidence that lenders focus on balance sheet (income statement) ratios in designing debt covenants for borrowers in low (high) OBS lease industries. Further, the use of balance-sheet- (income-statement-) based covenants falls (rises) faster in high OBS lease industries than in low OBS lease industries as the use of OBS leasing increases. This evidence indicates that OBS operating leases influence lenders' use of accounting information in covenants, suggesting that creditors consider the impact of OBS leases when structuring debt agreements. These results also suggest that the proposed capitalization of OBS leases may not result in firms violating loan covenants but will make the balance sheet a more complete source of information for debt contracting by removing the need for constructive capitalization of OBS leases.

SKEWNESS AND THE ASYMMETRY IN EARNINGS ANNOUNCEMENT RETURNS

2015 ◽  
Vol 38 (2) ◽  
pp. 145-168
Author(s):  
Benjamin M. Blau ◽  
J. Michael Pinegar ◽  
Ryan J. Whitby
Keyword(s):  
Earnings Announcement ◽  
Announcement Returns ◽  
The Asymmetry

“Stiff Business Headwinds and Uncharted Economic Waters”: The Use of Euphemisms in Earnings Conference Calls

2021 ◽  
Author(s):  
Kate Suslava
Keyword(s):  
Market Reaction ◽  
Abnormal Returns ◽  
Bad News ◽  
Conference Calls ◽  
Investor Attention ◽  
Earnings Announcement ◽  
Negatively Associated ◽  
The Impact

This paper studies whether euphemisms obfuscate the content of earnings conference calls and cause investors to underreact. I argue that managers’ use of euphemisms can alleviate the impact of bad news and delay the market reaction to adverse information. Using a dictionary of corporate euphemisms, I find that their use by managers—but not by analysts—is negatively associated with both immediate and future abnormal returns, and their frequency moderates the negative market reaction to bad earnings news. Finally, stock underreaction is more pronounced on busy earnings announcement dates, when investor attention is distracted. This paper was accepted by Brian Bushee, accounting.

scholarly journals Tournament Incentives and Acquisition Performance

2020 ◽  
Author(s):  
Iftekhar Hasan ◽  
Marco Navone ◽  
Thomas Y To ◽  
Eliza Wu
Keyword(s):  
Senior Executives ◽  
Acquisition Performance ◽  
Risk Seeking ◽  
Compensation Ratio ◽  
Announcement Returns ◽  
Seeking Behavior ◽  
Negative Effect ◽  
Editorial Decision ◽  
Alternative Identification ◽  
The Impact

Abstract This paper examines the impact of promotion-based tournament incentives on corporate acquisition performance. Measuring tournament incentives as the compensation ratio between the CEO and other senior executives, we show that acquirers with greater tournament incentives experience lower announcement returns. Further analysis shows that the negative effect is driven by the risk-seeking behavior of senior executives induced by tournament incentives. Our results are robust to alternative identification strategies. Our evidence highlights that senior executives, in addition to the CEO, play an influential role in acquisition decisions. (JEL G30, G34, G41, J31, J33, J62) Received: November 5, 2018; editorial decision January 6, 2020 by Editor Isil Erel.

scholarly journals Post-Earnings Announcement Drift in Greece

2015 ◽  
Vol 18 (03) ◽  
pp. 1550019 ◽  
Author(s):  
William Forbes ◽  
George Giannopoulos
Keyword(s):  
Financial Reporting ◽  
Stock Prices ◽  
Stock Exchange ◽  
International Financial Reporting Standards ◽  
Reporting Standards ◽  
Earnings Announcement ◽  
Financial Reporting Standards ◽  
Post Earnings Announcement Drift ◽  
Athens Stock Exchange ◽  
The Impact

This paper presents evidence regarding the post-earnings announcement drift (PEAD) anomaly for the Greek market in the years 2000–2006 (covering earnings announcements in the years 2001–2007). The impact of the introduction of International Financial Reporting Standards on the size and prevalence of the PEAD anomaly is examined. Unlike recent evidence for the US market we find PEAD to be alive and well, and of growing importance in our Greek sample. It may be the adoption of international financial reporting standards (IFRS) has served to reduce earnings predictability in Greece and thus enhance PEAD in the Athens stock exchange (ASE) market. This contrasts strongly with US evidence that the post-earnings-announcement drift anomaly is now waning as more efficient markets and smarter, fundamentals-based, traders arbitrage its impact on stock prices.

Pre-earnings announcement returns and momentum

2020 ◽  
Vol 196 ◽  
pp. 109521
Author(s):  
Archana Jain ◽  
Chinmay Jain ◽  
Revansiddha Basavaraj Khanapure
Keyword(s):  
Earnings Announcement ◽  
Announcement Returns
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