Intangible assets and debt contracting: an investigation of the determinants of net-worth covenants

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Title Intangible assets and debt contracting: an investigation of the determinants of net-worth covenants
Publication Type dissertation
School or College David Eccles School of Business
Department Entrepreneurship & Strategy
Author Wen, He
Date 2013-08
Description This dissertation explores the determinants of the inclusion of total-asset net-worth covenants in debt contracts. Frankel, Seethamraju, and Zach (2008) find that the magnitude of intangible assets is positively associated with the inclusion of total-asset net-worth covenants. This finding raises the question of why such an association exists, given that intangible assets can be worthless at liquidation and generate cash flows with high uncertainty. To answer this question, I examine if the decision to include intangible assets in debt covenants is a function of three factors: borrowing firms' reliance on future cash flows related to intangible assets to make loan payments, lenders' industry expertise, and access to private information. I find that debt contracts are more likely to include total-asset net-worth covenants when borrowers have higher debt-to-tangible assets ratio. I also find that debt contracts are more likely to include total-asset net-worth covenants when lenders have expertise in the borrowing firm's industry or have a longer lending relationship with the borrowing firm. These findings help us to understand why intangible assets are employed in some debt covenants, and they shed new light on the information needs for intangible assets in debt contracting.
Type Text
Publisher University of Utah
Subject Debt covenants; Intangible assets
Dissertation Institution University of Utah
Dissertation Name Doctor of Philosophy
Language eng
Rights Management Copyright © He Wen 2013
Format application/pdf
Format Medium application/pdf
Format Extent 1,635,135 bytes
Identifier etd3/id/2597
ARK ark:/87278/s63j6n5b
Setname ir_etd
ID 196173
Reference URL https://collections.lib.utah.edu/ark:/87278/s63j6n5b
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