This paper examines how shareholders value three widely used debt covenants – restrictions on investment, dividend, and subsequent financing – by focusing on the effects of these covenants on the market value of cash holdings. We find that investment and financing restriction covenants are related to higher cash value, consistent with these covenants reducing agency costs by alleviating managers’ over-investment behaviors. We also document that dividend restriction covenants are associated with lower cash value for dividend payers, consistent with such covenants exacerbating the free cash flow problems. Finally, we show that the above relations are more pronounced for firms with lower growth opportunities and weaker corporate governance, further supporting our arguments.
JEL Classification: M41
Keywords: DEBT COVENANTS; CASH HOLDINGS; MANAGERIAL ENTRENCHMENT; AGENCY COSTS; CORPORATE GOVERNANCE
학회소식
학회소식
[2010년 제 4차] Debt Covenants and the Value of Cash Holdings
작성자 : 관리자
조회수 : 1092
게시일 :
2010-12-09