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Debt Contracts (debt + contract)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	88%

Selected Abstracts

DOLLARIZATION OF DEBT CONTRACTS: EVIDENCE FROM CHILEAN FIRMS

THE DEVELOPING ECONOMIES, Issue 4 2009
Miguel FUENTES
F31; F49 This paper uses a new data set to estimate the causes and consequences of foreign currency debt in firms' balance sheets. The evidence from this sample of Chilean firms indicates that dollar-denominated debt increases with firms' size and degree of exposure to foreign competition. We find evidence that dollar-denominated debt combines with exchange rate movements to produce a negative balance-sheet effect that reduces firms' investment in periods of strong exchange rate depreciation. This negative balance-sheet effect is associated with long-term debt and appears to be nonlinear in the amount of real exchange rate depreciation. [source]

The Effect of Refinancing Costs and Market Imperfections on the Optimal Call Strategy and the Pricing of Debt Contracts

REAL ESTATE ECONOMICS, Issue 4 2005
Kenneth B. Dunn
This article, which was originally written in 1986, develops a methodology for valuing mortgage-backed securities with refinancing costs. We solve simultaneously for the valuation of the mortgage-backed security (loan) and the borrower's refinancing strategy, pricing all coupon levels simultaneously. Because the borrower may refinance his or her loan and incur costs at many times in the future, the optimal refinancing decisions arise from an optimal dynamic strategy that reflects the costs of all potential future refinancings. Though the borrower faces multiple rounds of refinancing costs, the market value of the loan cannot exceed the call price plus a single round of refinancing costs. [source]

Analysing UDROP: An Instrument for Stabilizing the International Financial Architecture

INTERNATIONAL FINANCE, Issue 1 2001
Axel LindnerArticle first published online: 16 DEC 200
This paper analyses implications of a proposal, called UDROP, to reform the standards of international debt contracts. The idea is to give borrowers a roll-over option at maturity for a specified length of time. Using recently developed models of financial crises, the paper shows for which type of crisis UDROP is beneficial. Moral hazard of the borrower is one of the problems UDROP faces which can be addressed by appropriately designing the debt contract. [source]

Monetary Policy, Agency Costs and Output Dynamics

GERMAN ECONOMIC REVIEW, Issue 3 2003
Ludger Linnemann
Interest rate policy; financial accelerator; sticky prices and wages Abstract. This paper examines the role of financial market imperfections for output reactions to nominal interest rate shocks. Empirical evidence shows a hump-shaped impulse response function of output and suggests that credit supply co-moves with output. A monetary business cycle model with staggered price setting is presented where the firms' outlays for capital and labor must be covered by the sum of net worth of entrepreneurs and loans in the form of debt contracts. These properties are shown to generate a hump-shaped impulse response of output, which takes on the smooth and persistent appearance of the empirical output response when nominal wages are set in a staggered way, too. [source]

Efficient contracting and accounting

ACCOUNTING & FINANCE, Issue 2 2003
David Emanuel
This paper examines the role of accounting in an efficient contracting perspective of the firm. The firm is an alternative to the market when the costs of using the market become excessive. When a firm replaces the market, authority substitutes for the price mechanism in determining how decisions are made. This paper examines accounting's role in controlling the firm to ensure resources are put to their highest-value use. Accounting, together with employment contracts, compensation arrangements, debt contracts, internal and external auditors, and the board of directors including its audit and compensation committees comprise a package of mechanisms that have evolved to govern the firm. These institutional devices become the firm's efficient contracting technology. As accounting is part of that contracting technology, the accounting controls and systems that evolve and get implemented are efficient and the accounting methods that are used in calculating the numbers that form part of the firm's contractual arrangements are, likewise, efficient. [source]

The International Financial Architecture: Old Issues and New Initiatives

INTERNATIONAL FINANCE, Issue 1 2002
Peter B. Kenen
Reform of the international financial architecture has made progress but has not dealt decisively with the need to involve private sector creditors in resolving debt-related crises. It has relied unduly on voluntary approaches combined with large-scale official financing. A comprehensive approach requires the use of temporary standstills to protect debtors against litigation. These can help to resolve ,liquidity' crises as well as ,solvency' crises. Proposals by Krueger (2001, 2002) provide a way to resolve the problem of a sovereign debtor with an unsustainable debt burden but offer no solution to problems involving private sector debt or to liquidity crises. They would also require an amendment to the Articles of Agreement of the International Monetary Fund, which could prove difficult. This paper proposes a less radical approach , adding rollover clauses and collective-action clauses to sovereign and private debt contracts, backed by strict limits on IMF financing. It resembles, but goes further than, the contractual approach favoured by the US Treasury. [source]

Analysing UDROP: An Instrument for Stabilizing the International Financial Architecture

Debt Covenants and Accounting Conservatism

JOURNAL OF ACCOUNTING RESEARCH, Issue 1 2010
VALERI V. NIKOLAEV
ABSTRACT Using a sample of over 5,000 debt issues, I test whether firms with more extensive use of covenants in their public debt contracts exhibit timelier recognition of economic losses in accounting earnings. Covenants govern the transfer of decision-making and control rights from shareholders to bondholders when a company approaches financial distress and thereby limit managers' abilities to expropriate bondholder wealth. Covenants are expected to constrain managerial opportunism, however, only if the accounting system recognizes economic losses in earnings in a timely fashion. Thus, the demand for timely loss recognition should increase with a contract's reliance on covenants. Consistent with this conjecture, I find evidence that reliance on covenants in public debt contracts is positively associated with the degree of timely loss recognition. I also find evidence that the presence of prior private debt mitigates this relationship. [source]

Presidential Address, Committing to Commit: Short-term Debt When Enforcement Is Costly

THE JOURNAL OF FINANCE, Issue 4 2004
Douglas W. Diamond
ABSTRACT In legal systems with expensive or ineffective contract enforcement, it is difficult to induce lenders to enforce debt contracts. If lenders do not enforce, borrowers will have incentives to misbehave. Lenders have incentives to enforce given bad news when debt is short-term and subject to runs caused by externalities across lenders. Lenders will not undo these externalities by negotiation. The required number of lenders increases with enforcement costs. A very high enforcement cost can exceed the ex ante incentive benefit of enforcement. Removing lenders' right to immediately enforce their debt with a "bail-in" can improve the ex ante incentives of borrowers. [source]