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Waiving Technical Default: The Role of Agency Costs and Bank Regulations
Author(s) -
HassabElnaby Hassan R.
Publication year - 2006
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/j.1468-5957.2006.00633.x
Subject(s) - waiver , agency cost , business , debt , agency (philosophy) , private information retrieval , finance , financial system , monetary economics , actuarial science , economics , corporate governance , philosophy , statistics , mathematics , epistemology , political science , law , shareholder
This paper examines whether the characteristics of banks and borrowers are associated with banks' decisions to waive violations of debt covenants. The findings suggest that banks possess sufficient private information about firms, and they use this information in their waiver decisions. Banks' decisions to waive violations vary with the borrowers' agency costs, debt features, the banks' characteristics and regulatory circumstances, and the bank‐firm business relationship. There is no evidence that syndicated loans, bank structure, and adverse economic conditions are significant determinants of the waiver decision. Research findings offer valuable insight into the theoretical and practical implications of debt covenants and agency costs.