Title

Precision in accounting information, financial leverage and the value of equity

Authors

Authors

G. Feltham; S. Robb;P. Zhang

Comments

Authors: contact us about adding a copy of your work at STARS@ucf.edu

Abbreviated Journal Title

J. Bus. Finan. Account.

Keywords

leverage; accounting precision; value of equity; EMPIRICAL-RESEARCH; DEBT; VALUATION; EARNINGS; OPTION; ANNOUNCEMENTS; COVENANTS; ACCRUALS; PROXIES; Business, Finance

Abstract

Using an equity valuation model characterized by periodic imperfect accounting information, we examine how financial leverage affects a firm's accounting quality choice (i.e., precision). We find that the existence of financial leverage motivates firms with average to good performance to prepare accounting information with a high degree of precision. However, we conclude that when a firm is performing poorly it has an incentive to reduce accounting precision in order to lower the likelihood of both a debt covenant violation and the detection of accounting bias.

Journal Title

Journal of Business Finance & Accounting

Volume

34

Issue/Number

7-8

Publication Date

1-1-2007

Document Type

Article

DOI Link

http://dx.doi.org/10.1111/j.1468-5957.2007.02027.x

Language

English

First Page

1099

Last Page

1122

WOS Identifier

WOS:000250263800004

ISSN

0306-686X

Recommended Citation

"Precision in accounting information, financial leverage and the value of equity" (2007). Faculty Bibliography 2000s. 7118.
https://stars.library.ucf.edu/facultybib2000/7118