The market response to implied debt covenant violations

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Last Modified
  • March 22, 2019
Creator
  • Stice, Derrald Earl, II
    • Affiliation: Kenan-Flagler Business School
Abstract
  • Previous research documents a negative stock price reaction to the announcement of debt covenant violations. I find evidence that investors price the likelihood of an earnings-based debt covenant violation on the date firms report earnings. Furthermore, I find no evidence of a negative stock price reaction to the announcement of an actual debt covenant violation when there was high likelihood of such a violation implied by previous reported earnings. My results suggest that the cost of debt covenant violations in the cross-section is higher than estimated in the previous literature.
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  • In Copyright
Note
  • "... in partial fulfillment of the requirements for the degree of Doctor of Philosophy in the Kenan-Flagler School of Business."
Advisor
  • Abarbanell, Jeffery
Degree granting institution
  • University of North Carolina at Chapel Hill
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Place of publication
  • Chapel Hill, NC
Access
  • Open access

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