NDLI: Discussion of “Hedge commitments and agency costs of debt: evidence from interest rate protection covenants and accounting conservatism”

Content Provider	Springer Nature Link
Author	Vasvari, Florin P.
Copyright Year	2012
Abstract	Beatty, Petacchi, and Zhang investigate the role of two hedge commitment mechanisms—interest rate protection covenants and accounting conservatism—in reducing agency costs of debt. Using a large sample of syndicated loan agreements, they provide evidence that borrowers required to hedge interest rate risk through interest rate protection covenants receive lower interest rate charges. However, borrowers who voluntarily hedge interest rate risks receive lower rates only if they implement conservative financial reporting. The authors conclude that the benefits of hedging are realized only when borrowers can credibly commit to maintain hedge positions once a syndicated loan is issued. While the evidence provided by the authors is novel and interesting, I argue that the empirical assessment of hedge benefits is more complex. In addition, there are still some important open issues left unanswered that could be tackled by future research.
Starting Page	739
Ending Page	748
Page Count	10
File Format	PDF
ISSN	13806653
Journal	Review of Accounting Studies
Volume Number	17
Issue Number	3
e-ISSN	15737136
Language	English
Publisher	Springer US
Publisher Date	2012-07-03
Publisher Place	Boston
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Covenants Hedging Interest rate risk Syndicated loans Finance/Investment/Banking Public Finance & Economics Accounting/Auditing
Content Type	Text
Resource Type	Article
Subject	Accounting

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Hedge commitments and agency costs of debt: evidence from interest rate protection covenants and accounting conservatism

Hedge commitments and agency costs of debt: evidence from interest rate protection covenants and accounting conservatism

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