We propose a novel role for accounting covenants in credit lines. Accounting covenants protect banks against severe aggregate liquidity shocks and firms against losing liquidity at will of banks. During aggregate liquidity shocks, banks need to ration liquidity, and covenants allow banks to...

A standard DCF corporate valuation usually includes a terminal value based on a long-term growth rate to reflect value from beyond the typical forecasting horizon of three to seven years. Despite often having a dominant effect on overall firm value, both the academic literature and practitioner...