Dissertation
INTANGIBLE ASSETS AND DEBT CONTRACTING: AN INVESTIGATION OF THE DETERMINANTS OF NET-WORTH COVENANTS
(2013)
Abstract
This dissertation explores the determinants of the inclusion of total-asset networth
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.
Publication Date
August, 2013
Degree
Doctor of Philosophy
Field of study
Business Administration
Department
David Eccles School of Business
Citation Information
He Wen. "INTANGIBLE ASSETS AND DEBT CONTRACTING: AN INVESTIGATION OF THE DETERMINANTS OF NET-WORTH COVENANTS" (2013) Available at: http://works.bepress.com/he-wen/2/