We analyze the determinants of covenant structure in private debt contracts. While previous studies have demonstrated a relationship between firm characteristics and the overall strictness of loan contracts, few studies have examined why covenants are written on a range of accounting variables...

Private debt contracts tend to have covenants that restrict future investment, restrict capital structure decisions, or impose thresholds for cash flows or other performance measures. While previous studies have demonstrated a relationship between firm characteristics and the overall strictness...

Models based on asymmetric information predict that debt is least sensitive to private information and cannot explain the illiquidity of corporate debt in secondary markets. We analyze security design with moral hazard and offer a new explanation. First, the optimal compensation contract creates...