Private Benefits Extraction and the Opposing Effects of Income Smoothing on Private Debt Contracts

@inproceedings{Amiram2012PrivateBE,
  title={Private Benefits Extraction and the Opposing Effects of Income Smoothing on Private Debt Contracts},
  author={Dan Amiram and Edward L. Owens},
  year={2012}
}
We provide evidence that a prevalent discretionary accounting action, income smoothing, affects private debt contract design in a manner that is fundamentally distinct from the effects of other accounting attributes. In particular, lenders use their understanding of the threat of private benefits extraction in the contracting environment to infer whether observed discretionary smoothing is associated with higher or lower expected credit loss. Discretionary smoothing decreases cost of debt… Expand

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