Association between restrictive covenants and accounting conservatism: evidence from US public debt

Purpose The purpose of this paper is to investigate the relationship between restrictive covenants and accounting conservatism. More specially, the authors try to explain how the use of restrictive covenants of public debt may affect accounting conservatism. Design/methodology/approach The sample is composed of non-financial firms and for each firm one debt contract is considered. The authors have used the Ball and Shivakumar (2005) models to test the relationships. All variables were retrieved from Mergent Fixed Investment Securities and COMPUSTAT Databases. Findings The findings of this study show that the more the firm relies on bond covenants, the higher is the degree of conservatism. The authors found also that these firms also exhibited a widely significantly increased level of conservatism in the years following the issuance of debt. Research limitations/implications The results should be interpreted with caution because the use of covenants does not take into consideration the tightness of their inclusion in the public debt contract. Originality/value This paper makes a timely contribution to the debate of timely loss recognition by confirming the complementarity between the inclusion of restrictive covenants in the debt agreement and the accounting conservatism before and after the emission of public debt.

ASPEK SYARIAH PADA INSTRUMEN SUKUK: ANALISIS PENERAPAN SUKUK WAKAF DI INDONESIA

Sukuk is a letter of acknowledgment of cooperation which has a more diverse scope than just an acknowledgment of debt. The sukuk transaction is not a debt contract, but rather participation. Sukuk issuance is issued with an underlying asset. Sukuk issuance must first obtain a statement of compliance with sharia principles to convince investors that the sukuk has been structured according to sharia. The parties involved in the issuance of the sukuk are Obligors, Special Purpose Vehicle (SPV), Investors. The income received by investors can be in the form of profit sharing, fees and certain margins. When due, the principal of the loan will also be returned to the holder. Issuers act as fund managers and investors act as owners of capital. The profit obtained by investors is a proportional share of the profits from the management of funds by investors. The issuance of sukuk linked waqf involves several parties, at least consisting of the Indonesian Waqf Board (BWI), state-owned companies, SPV, and investors. Waqf sukuk in Indonesia can be issued by private companies or state-owned companies. The sukuk mechanism is carried out by leasing the waqf assets to the sukuk issuer. The sukuk issuer will then issue the sukuk to investors. After the money from investors comes in, the sukuk issuer will contact the contractor to build assets on the waqf land. Then the asset is leased to a third party. The rent is paid to the sukuk issuer, then paid to the nazir. At the end of the period the waqf asset becomes the property of the nazir, returns to the nazir. Land and buildings, administered by the nazir. Keywords: Islamic Bond, Sukuk Linked Wakaf, Sukuk Ijarah, Sukuk Mudharabah. Abstrak Sukuk merupakan surat pengakuan kerjsama yang memiliki ruang lingkup yang lebih beragam dibandingkan hanya sekedar surat pengakuan hutang. Transaksi sukuk bukan akad utang piutang melainkan penyertaan. Penerbitan sukuk diterbitkan dengan suatu underlying asset. Penerbitan sukuk harus terlebih dahulu mendapatkan pernyataan kesesuaian prinsip syariah untuk meyakinkan investor bahwa sukuk telah distruktur sesuai syariah. Pihak-pihak yang terlibat dalam penerbitan sukuk adalah Obligor, Special Purpose Vehicle (SPV), Investor. Penghasilan yang diterima investor bisa berupa bagi hasil, fee, dan margin tertentu. Ketika jatuh tempo, pokok pinjaman juga akan dikembalikan kepada pemegangnya. Emiten bertindak selaku pengelola dana dan investor bertindak selaku pemilik modal. Keuntungan yang diperoleh investor merupakan bagian proporsional keuntungan dari pengelolaan dana oleh investor. Penerbitan sukuk linked wakaf melibatkan beberapa pihak, setidaknya terdiri dari Badan Wakaf Indonesia (BWI), Perusahaan BUMN, SPV, dan investor. Sukuk wakaf di Indonesia dapat diterbitkan oleh perusahaan swasta ataupun BUMN. Mekanisme sukuk ini dilakukan dengan menyewakan aset wakaf kepada penerbit sukuk. Penerbit sukuk kemudian akan menerbitkan sukuk kepada investor. Setelah uang dari investor masuk, penerbit sukuk akan menghubungi kontraktor untuk dibangun aset di atas tanah wakaf. Kemudian aset tersebut disewakan ke pihak ketiga. Uang sewa dibayar ke penerbit sukuk, kemudian dibayar juga ke nazir. Pada akhir periode aset wakaf tadi menjadi milik nazir, kembali ke nazir. Tanah dan bangunan, dikelola oleh nazir. Kata kunci: Obligasi Syariah, Sukuk Linked Wakaf, Sukuk Ijarah, Sukuk Mudharabah

Assessing the Accuracy of Forward-Looking Information in Debt Contract Negotiations: Management Forecast Accuracy and Private Loans

ABSTRACT We examine a possible mechanism by which the lender can evaluate the borrower's ability to produce accurate forward-looking information. Forward-looking information is important to lenders to project the borrower's future performance and the loan's expected payoff. However, unlike historical financial statements, forward-looking information cannot be verified by lenders or external auditors. We contend that the borrower's past forecast accuracy provides a measure that allows the lender to assess the borrower's ability to produce accurate forward-looking information, allowing the lender to gain greater confidence in the borrower's projections of future value. Consistent with this argument, we find that the borrower's past forecast accuracy is negatively associated with the loan's initial interest spread. We also find that this relation is concentrated among non-relationship loans and borrowers with greater earnings volatility. Finally, we find that debt contracts to borrowers with more accurate managerial forecasts exhibit less interest rate mispricing. JEL Classifications: G30; M40; M41.

Concepts, Definitions and Composition

Comparisons of public debt across countries and across time are hindered by the significant heterogeneity in definition and coverage. Public debt in France in 1830 bears very little resemblance to that of Brazil in 2016. This chapter will consider what constitutes a debt contract and onion-like layers of the sovereign entity: the central government, local government, central bank, state-owned enterprises, etc. The chapter uses this taxonomy to show the varied landscape of debt today, in particular: who are the major creditors and debtors; what are the main financing instruments (bonds, loans, swap, etc.); and what are the terms of the bond (currency, maturity, cost). This chapter will act as a reference guide to all those who work on debt issues on a regular basis.