This paper examines the relation between state contract law and the use of accounting information in debt contracts. Contract theory suggests that balance sheet-based covenants resolve debtholder-shareholder conflicts ex ante, whereas income statement-based covenants serve as trip-wires that...

We examine how informed trading activities affect the market reaction to accounting restatements. We find significantly less negative reactions to accounting estatements when managers are net purchasers of stock before the restatement, and significantly more negative market reactions when...