the effect of debt contracting on voluntary accounting method changes presented by: ira geraldina...
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THE EFFECT OF DEBT CONTRACTING ON VOLUNTARY ACCOUNTING METHOD CHANGES
Presented By:Ira geraldina
Intan OviantariNova Novita
Outline
Introduction Research Questions Hypothesis Development Methodology Results Sensitivity Analysis Conclusions
INTRODUCTION
Notes to Previous Researches It does not use the details of firms’
actual debt contracts assumes that contract calculations are based on current accounting methods
It focuses exclusively on debt covenants, ignores other accounting-based features of debt contracts, such as performance pricing
It focused on borrowers who were either close to violating or had already violated covenants
Beatty & Weber Research
Examine accounting methods changes on income increasing choices for firms that allows to do so by debt contract
Examine the effect of accounting based performance pricing as incentive to increasing income by changing accounting methods
Examine all accounting changing motivations
Primary Research Question
Specifics Research Questions Does allowing accounting changes to
affect debt contract calculations influence accounting choice?
Do the expected costs of covenant violations influence accounting choice?
Does performance pricing influence accounting choice?
Do dividend restrictions influence accounting choice?
Hypothesis Development (Q1)
H1
Hypothesis Development (Q2)
H2
Hypothesis Development (Q3)
H3
Hypothesis Development (Q4)
H4
Methodology-Research Design H1 & H2
Methodology-Research Design H3 & H4
Sample
• To Identify firms that change accounting method, We search all annual 10-K or quarterly 10-Q reports available on Lexis/Nexis from 1995-2000 for exhibit 18 disclosures.
• Then read each exhibit 18 report to determine whether the firm made a material accounting change.
• Table 1 describe the results of this sample selection process.
• We argue that our inferences are unlikely to be an artifact or sample selection bias for two reasons.
• First, we examine the types of accounting changes made by the firms we exclude. And the effects of these changes on net income, to ensure that our data requirements are not systematically related to our dependent variable. We conclude that our data requirements did not results in an endogenous sample bias.
• Second, we compare other characteristics or our sample firms and the exclude firms to ensure that our data these two groups of firm are not systematically different on other dimensions. We confirmed that these characteristics did not differ between the sample and exclude borrowers after partitioning on the accounting changes’ effect on net income.
Descriptive StatisticsTable 2 provides descriptive evidence on our
sample firm’s accounting method changes.
Results – Univariate Analysis
Correlation Among Independent Variables
Correlation Among Independent variables
Table 6
Support H1 (Table 6 Model 1)
Support H2 (Table 6 Model 1)
Support H3 (Table 6 Model 2)
Support H4 (Table 6 Model 2)
Table 6 Model 2
Management Compensation Incentive
Noncontracting Motives
External Parties
Sensitivity Analysis (Table 7)
Signed Magnitude of Income Effect
Debt Contracting Variable
Signed Magnitude of Income Effect (Table 7)
The Sensitivity of Rank Regression (Table 7)
Debt Contracting Variable
Debt Contracting Variable
Fact
Conclusions
Conclusions
Data Limitations
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