The Impact of Financial Covenants in Private Loan Contracts on Classification Shifting
研究发现，当私人贷款合同包含基于EBITDA的债务契约且接近违约时，企业更可能将核心费用错误分类为特殊项目，以提升EBITDA避免违约，且财务困境企业此行为更显著。
This study examines whether firms with private loan contracts that contain debt covenants based on earnings before interest, taxes, depreciation, and amortization (EBITDA) are more likely to misclassify core expenses as special items (i.e., classification shift). Misclassifying core expenses as income-decreasing special items allows the firm to increase EBITDA and thereby potentially avoid debt covenant violations. Consistent with our expectation, firms misclassify core expenses as special items when at least one EBITDA-related financial covenant is close to being violated. In addition, classification shifting is more prominent when financially distressed firms are close to violating at least one EBITDA-related covenant. Whereas prior research on classification shifting focuses primarily on equity market incentives (e.g., meeting analysts’ earnings forecasts), our study extends this research to private loan contracts to highlight that creditors also affect classification shifting. Classification shifting appears to be an additional earnings management technique used by managers to avoid debt covenant violations. This paper was accepted by Shivaram Rajgopal, accounting.