...com/locate/jae The contracting benefits of accounting conservatism to lenders and borrowers$ Jieying Zhangà Leventhal School of Accounting, University of Southern California, Los Angeles, CA 90089, USA Received 1 March 2004; received in revised form 17 May 2007; accepted 8 June 2007 Available online 19 July 2007 Abstract This paper examines the ex post and ex ante benefits of accounting conservatism to lenders and borrowers in the debt contracting process. I expect conservatism to benefit lenders ex post through the timely signaling of default risk, as manifested by accelerated covenant violations, and to benefit borrowers ex ante through lower initial interest rates. Consistent with these predictions, I find that more conservative borrowers are more likely to violate debt covenants following a negative price shock, and that lenders offer lower interest rates to more conservative borrowers. r 2007 Elsevier B.V. All rights reserved. JEL classification: M41; G32 Keywords: Conservatism; Debt contracting; Covenant violation; Spread 1. Introduction While positive accounting theory suggests that accounting conservatism enhances efficiency in the debt contracting process (Watts and Zimmerman, 1986; Watts, 2003a, b), there is little empirical evidence on the debt contracting benefits of conservatism. In this paper, I provide evidence on the ex post and ex ante benefits of conservatism to lenders and borrowers. Specifically, I document that conservatism benefits lenders ex post through the timely...
Words: 19141 - Pages: 77
...5. Why did the Franco regime seek to reverse gains made by Spanish women in the early twentieth century? Indisputably, General F. Franco’s dictatorship in a “Nationalist Spain” truncated both social and political progress made by women throughout the period of the early 1900s. In order to discuss the crucial motives for the totalitarian regime’s reversal of such developments, a brief historical background of European stances on the roles of women must firstly be examined. As established by H. Graham, attempts at preserving socio-cultural conservatism to uphold political ideologies during this era were geared primarily towards the reiteration of traditional gender roles in society. The influence of existent policies in a Fascist Italy and Nazi Germany at this time were, undoubtedly, of great influence on Franco’s regime. Earlier legislation enforcing this conservative perspective in Spain confirms such views, in that under these laws women could only conduct certain economic affairs, make purchases and sign contracts under supervision of a dominant husband - “el permiso marital” being required. This concept of subordination to men permeated Spanish society, restricting women to lives of exclusive domesticity. As ‘queen of the home’, the majority of middle and lower class women were uneducated illiterates, generally ignorant and uninvolved in political affairs and indoctrinated by traditions of Catholicism supremacy. However, several feminist organisations formed in the early...
Words: 2547 - Pages: 11
...Thank you for having me tonight. My fellow Americans, I’m running for president because I believe this election will give our nation one last chance to turn back a tidal wave of conservatism that will lead to America’s ultimate demise. For the past 12 years, we’ve watched as a new breed of conservatives were swept into political offices across this nation. The result of this power shift has been nothing short of disastrous. These conservatives aren’t your grandparents conservatives; these aren’t the Reagan conservatives of 1980’s and 90’s. This brand of conservatism has shifted to a bizarre, far-right corner on our political spectrum. They have made it their mission to destroy our nation’s social contract, and to turn back every value that we’ve held dear as a nation since its inception here in this very hall nearly three centuries ago. If elected, I will make sure that Americans are protected from the abuses we have suffered for the past 12 years by returning some fundamental principles to our governing structures; namely, the belief in equality under law, and the concept that we are our brother’s...
Words: 1687 - Pages: 7
...Advantages and Disadvantages of switching from U.S.GAAP to IFRS Nara Yoon Charles Center Summer 2009 Advantages and Disadvantages of switching from U.S.GAAP to IFRS 2 In today’s business, markets are demanding increasing conformity. Many countries have converted to and implemented the International Accounting Standards Board (IASB)’s accounting standards. The United States, however, still maintains its own Financial Accounting Standards Board (FASB). Both IASB and FASB have created International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (U.S.GAAP) respectively. These accounting standards are rules of measurements for financial statements that companies issuing stock to the public must provide to stockholders (Libby, 21). There are various advantages and disadvantages of the U.S. companies changing their systems from U.S.GAAP to IFRS. As the markets have grown to become more complex and global, the disparities between the two standards have been a significant issue as consumers and producers call for reform. The current differences between U.S.GAAP and IFRS affect many aspects of business. There seems to be some future losses but the U.S. is continuing to move toward conversion. The primary benefits U.S. hopes to get are comparability, and thus, greater market liquidity and lower cost of capital. They also hope to see cost savings for multinational companies who keep record of several accounting standards. Most...
Words: 3319 - Pages: 14
...THE ACCOUNTING REVIEW Vol. 79. No. 4 2004 pp. 967-1010 Costs of Equity and Earnings Attributes Jennifer Francis Duke University Ryan LaFond University of Wisconsin Per M. Olsson Duke University Katherine Schipper Financial Accounting Standards Board ABSTRACT: We examine the relation between the cost of equity capital and seven attributes of earnings: accrual quality, persistence, predictability, smoothness, value relevance, timeliness, and conservatism. We characterize the first four attributes as accounting-based because they are typically measured using accounting information only. We characterize the last three attributes as market-based because proxies for these constructs are typically based on relations between market data and accounting data. Based on theoretical models predicting a positive association between information quality and cost of equity, we test for and find that firms with the least favorable values of each attribute, considered individually, generally experience larger costs of equity than firms with the most favorable values. The largest cost of equity effects are observed for the accounting-based attributes, in particular, accrual quality. These findings are robust to controls for innate determinants of the earnings attributes (firm size, cash flow and sales volatility, incidence of loss, operating cycle, intangibles use/intensity, and capital intensity), as vi/ell as to alternative proxies for the cost of equity capital. W I. INTRODUCTION e...
Words: 16715 - Pages: 67
...Domestic Terrorism Domestic Terrorism Domestic terrorism has continued to reemerge throughout history. From the late the birth of America to the present day 20th century, the threat of terrorism continues to be a fact of everyday life for millions of people. From the unsuccessful assassination attempt on President Truman to the topping of the Twin Towers in New York, the United States continues the war on terrorism, except this war isn’t abroad, but here at home. Armed with the latest technology, intelligence, manpower, and unrelenting intestinal fortitude, the most powerful nation in the world, continues to do what they can to eliminate terrorism (Federal Bureau of Investigation, 2011). Terrorism is the use of violence to instill fear in a person or a group of people for ideological, religious or political reasons. Terrorist usually target public places or public officials. Their targets are something or someone who would get the attention of the people so that it could strike fear into the masses of people. Some of the public entities could be famous people, government buildings or monuments, or military members. This type of military tactics is known as guerrilla warfare strategy. Many experts agree that one person’s terrorist is another person’s freedom fighter. Experts also agree that random violence against civilians (non-combatants) is the type of actions taken by terrorists for achieving a political goal, on a scale smaller than full scale warfare. Political...
Words: 1720 - Pages: 7
...unrest and disrupted compliance with the draft. “The 20th is emphatically an African regiment, and to its credit be it spoken, not one of its members disobeyed orders, no one broke ranks to greet enthusiastic friends, no one used intoxicating drinks to excess, no one manifested the least inclination to leave the service, and their marching was very creditable." Blacks, who were not considered citizens, were exempt from the draft. The conscription in the North began a year later with ages between twenty and forty-five. However, the North’s system was unfair as well. In 1864, the Northern draft is amended to allow buyouts by conscientious objectors only. During the American Revolutionary War, exemptions had varied by state. For example, Pennsylvania required conscientious objectors (someone who is opposed to war) to pay a fee equal to roughly the amount of time they would have spent in the military. Those who failed to pay this fee had their property taken away. Substitutes could be hired for the objectors for a fee of $300. It was this that the term “rich man’s war, poor man’s fight” originated from. The poorly were forced endure the grueling fog of war, while the wealthy watched idly by. Many came up with lies to try to avoid the draft. “Commandants are instructed to investigate with great care all persons claiming to be citizens of Maryland. Unless parties can prove beyond all reasonable doubt that they are not residents of the Confederacy, the will be assigned to the army. April...
Words: 2185 - Pages: 9
...pays the [American] writer's language a backhanded compliment: This treatise is written with such elegance as the subject admits, tho' not without some mixture of the American dialect, a tract ["trace"] of corruption to which every language widely diffused must always be exposed. (In the World, No. 102, Dec. 12, 1754; quoted by Mencken 4) Johnson's assessment was mild compared to that of Samuel Taylor Coleridge, who asserted in 1822 that "the Americans presented the extraordinary anomaly of a people without a language. That they had mistaken the English language for baggage (which is called plunder in America), and had stolen it" (quoted in Mencken 28). Noah Webster attributed some of the marked features of New England speech to a conservatism engendered by the relative isolation, vis à vis the rest of the world, of the colonists, stating that New Englanders (of which he was one): have been sequestered in some measure from the world, and their language has not suffered material changes from their first settlement to the present time. Hence most of the phrases used by Shakespear, Congreve, and other writers who have described English manners and recorded the language of all classes of people, are still heard in the...
Words: 5176 - Pages: 21
...Applying IFRS in Germany – Determinants and Consequences Joachim Gassen Wirtschaftswissenschaftliche Fakultät Humboldt-Universität zu Berlin 10099 Berlin, Germany Phone: +49(0)30-2093 5764 E-mail: gassen@wiwi.hu-berlin.de Thorsten Sellhorn Fakultät für Wirtschaftswissenschaft Ruhr-Universität Bochum Universitätsstraße 150 44780 Bochum, Germany Phone: +49(0)234-32 28300 E-mail: sellhorn@iur.rub.de First Version, June 2006 This Version, July 2006 Forthcoming in: Betriebswirtschaftliche Forschung und Praxis, 58 (4), 2006. We thank Karsten Detert for some of the data used in this study. Applying IFRS in Germany – Determinants and Consequences Abstract: We address three research questions motivated by the recent ascent of International Financial Reporting Standards (IFRS) in Europe. First, analyzing the determinants of voluntary IFRS adoption by publicly traded German firms during the period 19982004, we find that size, international exposure, dispersion of ownership, and recent IPOs are important drivers. Second, using the results from this determinant model to construct propensity score-matched samples of IFRS and German-GAAP (HGB) firms, we document significant differences in terms of earnings quality: IFRS firms have more persistent, less predictable and more conditionally conservative earnings. Third, analyzing information asymmetry differences between IFRS and HGB firms, we show that IFRS adopters experience a decline in bid-ask spread of 70 base points and an...
Words: 11298 - Pages: 46
...MP A R Munich Personal RePEc Archive The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review Anton Miglo University of Bridgeport 2010 Online at http://mpra.ub.uni-muenchen.de/46691/ MPRA Paper No. 46691, posted 6. May 2013 19:07 UTC The Pecking Order, Trade-off, Signaling, and Market-Timing Theories of Capital Structure: a Review Anton Miglo Associate professor, University of Bridgeport, School of Business, Bridgeport, CT 06604, phone (203) 576-4366, email: amiglo@bridgeport.edu. This version: 2013 Initial version: 2010 Abstract. This paper surveys 4 major capital structure theories: trade-off, pecking order, signaling and market timing. For each theory, a basic model and its major implications are presented. These implications are compared to the available evidence. This is followed by an overview of pros and cons for each theory. A discussion of major recent papers and suggestions for future research are provided. Introduction The modern theory of capital structure began with and the famous proposition of Modigliani Miller (1958) that described the conditions of capital structure irrelevance. Since then, been changing these conditions to explain factors driving capital many economists have structure decisions. Harris and Raviv (1991) synthesized major theoretical literature in the field, related these to the known empirical evidence, and suggested promising avenues for future research. They argued...
Words: 8184 - Pages: 33
...Wellbeing Introduction The literature provided for this assignment will critically explore the relevance and the application of the concept of wellbeing within my organisational setting. My organisational setting is a Further Education College based in Cardiff, South Wales. My role in this institution is to deliver education and training in the vocational trade of plastering. Cardiff is now a diverse and multicultural city and many of the students that attend our college evolve from different social, economic and religious backgrounds as well as having variable capabilities. As a provider of education and training, it is important that we implement policies and procedures that meet the needs of the community by promoting inclusion and addressing inequalities. Every student is treated as an individual and we strive to eliminate discrimination and overcome the disadvantages that exist in society these days that have treated some groups less favourably than others. My duty as an educator is to provide my learners with a positive learning environment and to support their wellbeing by providing challenging, interactive and good quality learning experiences. Wellbeing The psychology of wellbeing has been studied since the times of Aristotle, for two millennia, man has sought the highest good for himself, happiness. The notion of happiness remains vague and multifarious, yet every human being searches for it. However, how to define and obtain happiness has and continues to be a...
Words: 3083 - Pages: 13
...Organizational Change of the Chrysler Corporation in the 1978 Bailout and Lee Iacocca Dustin T. Embler BA 401 Research Paper/Case Study Abstract In the year 1978 one of the United States largest corporations was on the brink of financial crisis, the Chrysler Corporation. Hundreds of jobs, billions of taxpayer dollars, and the success of an American company all lay in the balance. Chrysler was overcome in debt due to its subpar decision making, increasing government regulations, and inability to compete with its domestic and foreign competition. Nevertheless, a hero arrived when Lee Iacocca joined as President of Chrysler to aid to its recovery in such adverse times. Fighting his way through the United States legislation for financial assistance to save Chrysler, Iacocca is able to successfully get the necessary legislation passed that will not only help him keep the company afloat but to also change the entire organization into a successful and profitable business in a matter of years. History of the Chrysler Corporation and Lee Iacocca “The Chrysler Corporation was founded in 1925 by Walter P. Chrysler, a former railroad mechanic who rose through the ranks of GM to lead the highly successful Buick Division. Chrysler did not get along well with William Durant, the founder and head of GM, and eventually left to form his own company (Braun).” “Always short of capital in this capital-intensive business, Chrysler was forced to build its cars largely of purchased parts...
Words: 3022 - Pages: 13
...How successful was Fascism in achieving its totalitarianism ambitions? The first time Mussolini used the term ‘totalitarian’ was in a speech at the Fascists Party’s fourth national congress in 1995*1 , he declared the ‘goal that is defined as our ferocious totalitarian will be pursued with even greater ferociousness’*1 . There is no doubt that Benito Mussolini was a very determined dictator. His aim was to create a long lasting Fascist Italy*1. In order to achieve his aim he required the total involvement and participation of every member of the state, in other words he needed to ‘Fascistize the masses’*1. Unfortunately Fascism was a very ambitious plan that failed to properly execute its aims*2. In order to delve deeper into the ways that Mussolini failed in his totalitarianism aims, we must first define what totalitarianism is. The essence of totalitarianism can be seen as a regime’s total control of the everyday life of its citizens, of its control, and more particularly of their thoughts and attitudes as well as their activities *3. A totalitarian dictatorship must have an elaborate ideology, a single mass party which is led by the ‘dictator’, a system of terror, near complete control over weapons of armed combat, control over all means of effective mass communication including the press, radio and cinema, and finally central control over the entire economy*3. While Mussolini dabbled in all of these areas he failed to execute them in an effective manner. It is interesting...
Words: 3158 - Pages: 13
...Journal of Accounting and Economics 50 (2010) 344–401 Contents lists available at ScienceDirect Journal of Accounting and Economics journal homepage: www.elsevier.com/locate/jae Understanding earnings quality: A review of the proxies, their determinants and their consequences$ Patricia Dechow a, Weili Ge b, Catherine Schrand c,n a b c University of California, Berkeley, CA 94720, United States University of Washington, Seattle, WA 98195, United States University of Pennsylvania, Philadelphia, PA 19104, United States a r t i c l e i n f o abstract Available online 4 November 2010 Researchers have used various measures as indications of ‘‘earnings quality’’ including persistence, accruals, smoothness, timeliness, loss avoidance, investor responsiveness, and external indicators such as restatements and SEC enforcement releases. For each measure, we discuss causes of variation in the measure as well as consequences. We reach no single conclusion on what earnings quality is because ‘‘quality’’ is contingent on the decision context. We also point out that the ‘‘quality’’ of earnings is a function of the firm’s fundamental performance. The contribution of a firm’s fundamental performance to its earnings quality is suggested as one area for future work. & 2010 Elsevier B.V. All rights reserved. JEL classification: G31 M40 M41 Keywords: Earnings quality Earnings management Review Survey 1. Introduction Statement of Financial Accounting...
Words: 58742 - Pages: 235
...110 CHAPTER 6 Sectional Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128 CHAPTER 7 The Civil War and Reconstruction . . . . . . . . . . . . . . . . . . 140 CHAPTER 8 Growth and Transformation . . . . . . . . . . . . . . . . . . . . . . . 154 CHAPTER 9 Discontent and Reform . . . . . . . . . . . . . . . . . . . . . . . . . . . 188 CHAPTER 10 War, Prosperity, and Depression . . . . . . . . . . . . . . . . . . . . 202 CHAPTER 11 The New Deal and World War I . . . . . . . . . . . . . . . . . . . . . 212 CHAPTER 12 Postwar America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 256 CHAPTER 13 Decades of Change: 1960-1980 . . . . . . . . . . . . . . . . . . . . . 274 CHAPTER 14 The New Conservatism and a New World Order . . . . . . 304 CHAPTER 15 Bridge to the 21st Century . . . . . . . . . . . . . . . . . . . . . . . . . 320 PICTURE PROFILES Becoming a Nation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Transforming a Nation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 Monuments and Memorials . . . . . . . . . . . . . . . . . . . . . . . . 161 Turmoil and Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229 21st Century Nation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293 Bibliography . . . . . . . ....
Words: 104976 - Pages: 420
