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Title: The role of accounting in debt markets
Author: Gad, Mahmoud Ahmed
ISNI:       0000 0004 6058 0211
Awarding Body: University of Bristol
Current Institution: University of Bristol
Date of Award: 2016
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In this thesis, I examine why accounting is important in debt markets. The thesis consists of three essays. In the first essay, I examine how syndicated loan structure is influenced by financial reporting conservatism. Early theoretical research focuses on the impact of asymmetric information and moral hazard problems on the loan contracting process. I hypothesize that, given their preference for verifiable lower bound measures of earnings and net assets, creditors are likely to value financial reporting conservatism as a means of reducing information asymmetry. Using a firm-year measure of conservatism, I find that the number of non-lead participants is a positive function of the degree of conditional conservatism. In addition, the lead arranger share is negatively associated with the degree of conditional conservatism. I also examine the relation between conditional conservatism and syndicate structure during the financial crisis. The results show that the relation between conditional conservatism and syndicate structure is more pronounced during the financial crisis. The results add further evidence on the role of financial reporting conservatism in resolving information asymmetries in debt markets. In the second essay, I investigate how the firm's financial reporting quality, measured by timely loss-recognition (TLR), affects lenders' decision to participate in cross-border syndicated loan markets. Using a large international sample of syndicated loans encompassing 20 countries, I show that both proportion of foreign lenders in a syndicate and their shares of the loan amount increase in the borrower's TLR. This effect is more pronounced for loans initiated during the financial crisis. In addition, the effect is less pronounced for loans extended to firms with a high international presence' and which reside in the countries with strong creditor protection. The evidence suggests that TLR reduces information asymmetries between lenders' and borrowers in cross-border credit markets where the asymmetry is likely to be most severe. In the third essay, I investigate the impact of large blockholders on the monitoring demands by lenders. Using novel data from US debt contracts, I show that creditors are more likely to require a covenant-compliance certificate (CC) from the borrower's auditor when large blockholders are present in its ownership structure. The effect is less pronounced for firms rated by credit rating agencies. Consistent with the debt-equity conflict hypothesis, I find the presence of transient and passive investors, but not long-term strategic investors, drives the inclusion of the CC provision. The evidence suggests that institutional investors with myopic investment horizons are a cause for concern for creditors, but that additional monitoring may alleviate such concerns.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available