Eric Press

Accounting-based constraints in public and private debt agreements : Their association with leverage and impact on accounting choice

Abstract For a random sample of 83 firms, we show that public and private debt agreements filed at the SEC yield a more comprehensive set of accounting constraints than annual reports or Moodys . For firms with accounting constraints, measures of proximity to leverage, net worth, and working capital constraints are significantly correlated to leverage. We incorporate constraint-related data into Zmijewski and Hagermans (1981) income strategy model. Both a leverage constraint indicator and leverage are significantly associated with accounting choice. This suggests that leverage is proxying for factors in addition to the existence of accounting-based constraints.

CORRELATES OF ENTERING MEDICAL STUDENTS' ATTITUDES TOWARD GERIATRICS

Six successive entering classes at a medical school were surveyed concerning their attitudes toward geriatrics. Responding students general attitudes toward the elderly were not negative. Despite this, only 3% of all students showed interest in specializing in geriatric medicine. Path analysis revealed that preference for treating older patients, prior volunteer work with the elderly, and a positive attitude toward the aged in general enhanced student interest in geriatrics. General attitudes derived from feelings of closeness experienced with the elderly in familial and friendship relations. Students who preferred older patients perceived this patient category positively. Perceptions of elderly patients, in turn, were influenced by attitudes toward the aged and by perceived satisfaction of physicians treating the elderly. The model explains a third of the variance in the measure of disinterest in geriatric specialization. Adding sociological factors to the path model in lieu of biographical ones may inc...

Differences in the Value Relevance of Earnings in Knowledge-Based and Traditional Industries

This paper evaluates the value relevance of earnings in knowledge-based and traditional industries. We focus on two factors - earnings lack of timeliness and noise - that contribute to the weak contemporaneous association between earnings and stock returns in knowledge-based industries. Earnings lack of timeliness represents the non-contemporaneous association between earnings and stock returns, whereas noise - arising from uncertainty in estimating the expected benefits of investments in intangibles - is unassociated with either contemporaneous, past, or future returns. To correct earnings lack of timeliness, we derive a new model that includes future earnings changes, an earnings-to-price ratio, and future stock returns; we abate noise by aggregating yearly data within the same industry. We find adjusting for lack of timeliness is more effective in traditional industries, and diversifying away noise in knowledge-based industries increases the association of earnings and stock returns substantially. The value relevance of earnings in both types of industries is indistinguishable when we jointly control noise and lack of timeliness. We conclude that noise is the main factor contributing to the weak association between earnings and stock returns for firms in knowledge-based industries.

Debt covenant disclosures and the impact of SEC Rule 144A

Abstract In April 1990, restrictions on the resale of privately placed securities by security brokers and institutional buvers were removed when the SEC adopted Rule 144A. Under the old regulation, Rule 144, buyers of private debt could not resell before a holding period of several years. In this paper, we examine changes in disclosure brought on by Rule 144A. We selected a random sample of 75 firms and assessed the current environment for disclosures of their debt covenants. We then simulated the effects of the shift to private markets for financing. We found that disclosures required by the material contract provisions of Item 601.b of SEC Regulation S-K, as well as Generally Accepted Accounting Principles (GAAP), made up most of the deficiencies in the availability of debt covenant information. However, investors face additional search costs in becoming informed about private debt if information intermediaries choose not to report on the covenants in private debt. The Financial Accounting Standards Board (FASB) faces the question of whether to advocate expanded disclosure or to rely on information intermediaries to increase their disclosures on private debt agreements.