Date of Award

Spring 5-15-2015

Author's School

Graduate School of Arts and Sciences

Author's Department

Business Administration

Additional Affiliations

Olin Business School

Degree Name

Doctor of Philosophy (PhD)

Degree Type



This dissertation is comprised of three essays relating to accounting regulation and debt contracting. The first essay is designed to draw inferences about lenders' demand for lease accounting rules in light of proposed lease accounting standard changes. I study changes in lease-related debt covenants surrounding the adoption of Statement of Financial Accounting Standards 13: Accounting for Leases in 1976. I find that lenders are significantly less likely to inhibit leasing activity via lease restrictions after SFAS 13 adoption and that lenders are significantly more likely to modify debt covenants to capitalize operating leases across time in the post-SFAS 13-adoption period. The findings suggest that lenders adapt debt covenant definitions to changes in accounting standards. Further, the findings indicate that lenders adapt debt covenant definitions to changes in borrowers' financial reporting incentives.

The second essay investigates whether lenders capitalize operating leases uniformly when defining debt covenants. I argue that bankruptcy treatment of leases affects lenders' incentives to incorporate operating leases into debt covenants leading to differential treatment of operating leases as opposed to a "one-size-fits-all" contracting treatment of operating leases. Using a hand-collected sample of lending agreements from firms that use operating leases extensively, I find a positive association between the probability of lenders capitalizing operating leases into debt covenants and the duration of borrowers' lease contracts. The results indicate that lenders discriminate among operating leases when designing debt covenants and suggest that operating leases vary in their effect on credit risk.

The third essay examines the relation between contract-specified accounting standards and private lender country of domicile. Prior studies provide evidence suggesting that equity investors' information gathering and processing costs are related to differences in reported accounting standards. While lenders have access to private information about prospective borrowers, I document that US lenders are more likely to contract on US accounting standards that match their home country. These findings generalize to Canadian, UK, and IFRS-country lenders and suggest that lenders exhibit a preference for home-country GAAP. In additional tests, I examine whether the degree of difference between borrower- and lender-country accounting standards affects the likelihood that a debt contract from a US lender specifies US GAAP and whether contracting on similar GAAP affects other loan terms. I find no significant effect on the probability of contracting on US GAAP when accounting differences are larger. Similarly, I find no significant evidence that lenders modify loan spread, maturity, and financial covenant use for loans from US lenders that specify US accounting standards.


English (en)

Chair and Committee

Richard Frankel

Committee Members

Gauri Bhat, Jared Jennings


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