Title

Precision In Accounting Information, Financial Leverage And The Value Of Equity

Keywords

Accounting precision; Leverage; Value of equity

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. © 2007 Blackwell Publishing Ltd.

Publication Date

9-1-2007

Publication Title

Journal of Business Finance and Accounting

Volume

34

Issue

7-8

Number of Pages

1099-1122

Document Type

Article

Personal Identifier

scopus

DOI Link

https://doi.org/10.1111/j.1468-5957.2007.02027.x

Socpus ID

35148863406 (Scopus)

Source API URL

https://api.elsevier.com/content/abstract/scopus_id/35148863406

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