We examine how fair value accounting affects debt contract design, specifically the use and definition of financial covenants in private loan contracts. Using SFAS 159 adoption as our setting, we find that a small but significant proportion of loans (14.5%) modify covenant definitions to exclude...

We examine how fair value accounting affects debt contract design, specifically the use and definition of financial covenants in private loan contracts. Using SFAS 159 adoption as our setting, we find that a small but significant proportion of loans (14.5%) modify covenant definitions to exclude...

We study how recognition versus disclosure affects the control function of accounting through the use of debt covenants. While research shows that recognition affects the value-relevance of reported amounts, the effect on contracting is unclear. We examine whether covenants changed around SFAS...