Accounting and Non-Accounting Based Information in the Market for Debt: Evidence from Australian Private Debt Contracts

25 Pages Posted: 7 Aug 2006

See all articles by Ian Ramsay

Ian Ramsay

Melbourne Law School - University of Melbourne

Baljit K. Sidhu

UNSW Australia Business School, School of Accounting

Abstract

This paper examines accounting and non-accounting based restrictive covenants in Australian private debt agreements. With respect to the former, our findings differ from previous research on public debt. We find more varied definitions of constraints and their specific tightness in private debt contracts than in public debt contracts. Further, limits on interest cover are found to be continuing constraints and not 'once-off' limits. The paper reports frequent use of more specific or 'tailored' accounting based constraints and the frequent inclusion of off-balance sheet numbers in the measurement rules specified.

The paper also provides the first Australian evidence on the use of non-accounting based constraints. These are pervasive and cover a wide range of corporate activity. While largely consistent with previous research the paper also reports evidence of restrictions previously argued to be sub-optimal and hence, unlikely to be observed. Specifically, there are frequent restrictions on firms' production and investment policies.

Suggested Citation

Ramsay, Ian and Sidhu, Baljit K., Accounting and Non-Accounting Based Information in the Market for Debt: Evidence from Australian Private Debt Contracts. Accounting and Finance, Vol. 39, No. 2, 1998. Available at SSRN: https://ssrn.com/abstract=922221

Ian Ramsay

Melbourne Law School - University of Melbourne ( email )

University Square
185 Pelham Street, Carlton
Victoria, Victoria 3010
Australia
+61 3 8344 5332 (Phone)

HOME PAGE: http://law.unimelb.edu.au/about/staff/ian-ramsay

Baljit K. Sidhu (Contact Author)

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia

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