Author : Messod D. Beneish
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.:/5 (129 download)
Book Synopsis The Relation between Incentives to Avoid Debt Covenant Default and Insider Trading by : Messod D. Beneish
Download or read book The Relation between Incentives to Avoid Debt Covenant Default and Insider Trading written by Messod D. Beneish and published by . This book was released on 2014 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: We use a sample of firms that experience technical default to investigate whether an observable managerial action, managers? trading, is useful in (1) determining the existence of pre-default earnings management, and (2) in assessing whether specific contract modifications in renegotiated debt agreements are costly. We find income-increasing accruals and unexpected accruals in the year preceding the year of default of magnitudes sufficient to forestall default. We show, however, that the significant income-increasing accruals and unexpected accruals occur only in firms in which managers engage in abnormal insider selling. Our evidence suggests that by managing earnings to delay the onset of default, managers sell their equity-contingent wealth at higher prices. Finally, our evidence implies that renegotiated debt provisions?such as additional covenants and restricted borrowing?are costly for firms with greater investment opportunities prior to default.