Skip to main content
main-content

Tipp

Weitere Artikel dieser Ausgabe durch Wischen aufrufen

17.02.2018 | Original Research | Ausgabe 1/2019

Review of Quantitative Finance and Accounting 1/2019

Do debt covenant violations serve as a risk factor of ineffective internal control?

Zeitschrift:
Review of Quantitative Finance and Accounting > Ausgabe 1/2019
Autoren:
Jun Guo, Pinghsun Huang, Yan Zhang

Abstract

We examine whether debt covenant violations serve as an important determinant of material weaknesses in internal control over financial reporting. Motivated by the debt covenant hypothesis, we posit that the probability of ineffective internal control is expected to be significantly higher for firms with debt covenant violations than for firms without the violations. Equivalently, a covenant violation implies an increasingly unseen firm risk related to internal control ineffectiveness: violating firms can previously select inappropriate but undetected accounting techniques more extensively to delay the current covenant violation or exploit opportunistic accounting methods to prevent further debt covenant violations. Consistent with this notion, our empirical evidence indicates that firms violating debt covenants are more likely to have internal control weaknesses. We also uncover that the positive association between the violations and internal control weaknesses is more pronounced for firms that fail to remediate violations by fiscal year-end. Further, the connection between debt covenant violations and ineffective internal control intensifies with the severity of internal control problems. Our results are robust to a variety of controls, alternative measures, different disclosure regimes, and propensity score matching approach. Overall, our results suggest that debt covenant violations can serve as a risk factor of internal control breakdown.

Bitte loggen Sie sich ein, um Zugang zu diesem Inhalt zu erhalten

Sie möchten Zugang zu diesem Inhalt erhalten? Dann informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 69.000 Bücher
  • über 500 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Umwelt
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe

Testen Sie jetzt 30 Tage kostenlos.

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 58.000 Bücher
  • über 300 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb




Testen Sie jetzt 30 Tage kostenlos.

Literatur
Über diesen Artikel

Weitere Artikel der Ausgabe 1/2019

Review of Quantitative Finance and Accounting 1/2019 Zur Ausgabe

Premium Partner

    Bildnachweise