Recent years have seen a new trend in commercial bank lending—loans with no financial covenants. These covenant light, or cov-lite, loans raise concerns about excessive risk to lenders due to lack of monitoring. In this study, we examine the consequences of cov-lite loans. Focusing on rated,...

We measure the probability that a borrower will violate financial covenants in private debt contracts. We analyze hand-coded data and specify standard covenant definitions using Compustat data that minimize measurement error for all individual Dealscan covenants. We use these definitions to...

I examine the role of financial covenants in private debt contracts. I predict that financial covenants help limit ex ante uncertainty about the borrower's performance - the risk that the borrower will default on the loan - in the contract. I find that covenant inclusion is positively related to...

Evidence shows that managers' debt-like compensation (i.e., inside debt) aligns their incentives with lenders', reducing the agency cost of debt. We examine how changes in the contracting environment affect the use of inside debt in debt contracting. We find evidence of reduced reliance on...

In this study, we replicate and extend Dichev and Skinner’s [DS: 2002] study on the debt covenant hypothesis (DCH). We start by replicating DS and find results consistent with theirs. We then extend their work by changing three aspects of the research design: histogram bin width, calculation...