Discussion of 'Borrower Private Information Covenants and Loan Contract Monitoring'
17 Pages Posted: 18 Jul 2017
Date Written: July 18, 2017
Carrizosa and Ryan (2017) explore the use of private information covenants, which contractually oblige borrowers to provide their lenders with private information: projected or intra-quarter financial statements. The authors offer evidence that creditors acquire private information about borrowers via information covenants after a contract is in place. This in turn facilitates the creditor monitoring process, subject to a cost-benefit tradeoff. I discuss how the study fits into the literature and provide additional perspective on some of its arguments. I contend that the cost side and hence the trade-offs associated with information covenants are less clear and have yet to be established empirically. I discuss complementary information mechanisms that deserve attention and raise several research design issues. I also argue that the study can shed light on an open question in the disclosure literature.
Keywords: Monitoring, disclosure, information covenants, reporting frequency, contracting on accounting information
JEL Classification: D80, G14, G21, G30, M40
Suggested Citation: Suggested Citation