Accounting Quality and Debt Concentration

We examine the relation between accounting quality and debt concentration in corporate capital structures (i.e., firms' tendency to rely predominantly on only a few types of debt). Motivated by theoretical and empirical research that supports a strong link between debt concentration and creditors' coordination costs and the importance of accounting quality in reducing these costs, we hypothesize that firms with higher accounting quality have less concentrated debt structures. Measuring accounting quality with a comprehensive index based on the occurrence of material internal control weaknesses, accounting restatements, SEC AAERs, and firms' reliance on small auditors, we find that higher accounting quality is indeed associated with less concentrated debt structures. This relation is stronger for firms with higher default risk, as the probability that creditors need to coordinate is higher, and for firms with lower liquidation values, as creditor coordination to avoid liquidation is more important.

The Strained Marriage of Public Debts and Private Contracts

[S]overeign debt is a complex political institution, which cannot be reduced to creditor coordination or any other contract problem.

Creditor Coordination, Liquidation Timing, and Debt Valuation

This paper derives closed-form solutions for values of debt and equity in a continuous-time structural model in which the demands of creditors to be repaid cause a firm to be put into bankruptcy. This allows discussion of the effect of creditor coordination in recovering money on the values of debt, equity, and the firm, as well as on optimal capital structure. The effects of features of bankruptcy codes that prevent coordination failures between creditors, such as automatic stays and preference law, are also considered. The model suggests that such features, while preventing coordination failures, can decrease welfare.