Discussion of “Borrower private information covenants and loan contract monitoring”

Carrizosa and Ryan (2017) explore the use of private information covenants, which contractually oblige borrowers to disclose projected and intra-quarter financial statements. The authors provide evidence that creditors acquire private information about borrowers via these covenants. This facilitates...

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Bibliographic Details
Published in:Journal of accounting & economics 2017-11, Vol.64 (2-3), p.340-345
Main Author: Nikolaev, Valeri V.
Format: Article
Language:English
Subjects:
Contracting on accounting information
Information covenants
Monitoring, disclosure
Reporting frequency
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Summary:Carrizosa and Ryan (2017) explore the use of private information covenants, which contractually oblige borrowers to disclose projected and intra-quarter financial statements. The authors provide evidence that creditors acquire private information about borrowers via these covenants. This facilitates the monitoring process, subject to a cost-benefit tradeoff. I discuss how the study fits into the literature and contend that the costs associated with information covenants are less clear and have yet to be established. I discuss complementary information mechanisms and raise several research design issues. I also argue that the study sheds light on an open question in the disclosure literature.
ISSN:0165-4101
1879-1980
DOI:10.1016/j.jacceco.2017.08.002