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...

Despite the common perception that levered firms are riskier, a review of empirical studies and past theoretical works is presented to discuss the hypotheses that i) corporate debt does not increase the overall risk of the firm; ii) corporate debt reduces the risk and return of equity; iii)...

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...