Banks Have Sticky Preferences for Loan Contract Design: Lender-Side Determinants of Debt Covenant Inclusion

            Banks develop expertise from their prior lending experience in monitoring borrowers’ financial activities in order to mitigate conflicts of interests between managers and creditors arising from asymmetric information. In loan contracts, covenants have classically been viewed as a method of controlling agency problems by restricting managerial behavior.[1] Covenants can align the interests of the contracting […]

A Trip Down Crypto’s Memory Lane

Last month, I published an op-ed in the Wall Street Journal that argued for a ban on cryptocurrency in order to combat the ransomware plague that is devastating our economy and businesses across the country. My premise is simple. Cryptocurrency has been around for over a decade; that is more than enough time for us to take […]

Should a Company Reveal That it is Evaluating “Strategic Alternatives”?

Seeking “strategic alternatives” is industry jargon for considering a potential sale or merger. During this process, the company gauges interest from potential acquirers. From 1990 to 2018, there were more than 1,200 announcements made by public companies revealing that they were reviewing strategic alternatives (examples here and here). Before deciding whether to disclose this information voluntarily, via a […]

Why Do Lenders Include Cost Savings and Synergy Add-backs in Loan Agreements?

Accounting is conservative. Under Generally Accepted Accounting Principles (GAAP), a firm should recognize losses before the losses are realized but postpone the recognition of gains until the gains are realized. In other words, the conservative accounting principle promotes timely loss recognition at the expense of timely gain recognition. However, in debt contracting, where lenders and […]

How Policymakers Can Defuse a Major ESG Threat to Shareholder Rights

Since 2004, when the term “ESG” was first used in a report published by the United Nations Global Compact, there has been an explosion of interest in the concept, including in corporate boardrooms. The Global Compact, in a follow-up report the next year, described the emergence of ESG corporate policies as a “powerful and historic convergence … between the objectives […]

The Role of the Board’s Financial Expertise in the IPO Process

Since the 1970s, the underpricing of IPOs has been a well-observed phenomenon and many issuers see their stock price rising sharply on the first day of trading, which means that the IPO firm could have realized higher proceeds from the offering (“money left on the table”). As a result, venture capitalists and Silicon Valley companies recently expressed their […]

The Importance of Firm-Specific Knowledge in Audit Committee Chair Successions

The audit committee chair is considered the cornerstone of the audit committee. Charged with directing the committee’s activities, the chair sets the agenda and presides over its meetings. The chair must ensure that committee members focus on key issues and fulfill their roles as part of the group. The chair also acts as the liaison between the […]

Corporate Income Tax and CSR

Corporate social responsibility (CSR) means that a company commits to carry out its business in an ethical way to ensure that there is a positive impact not only on its shareholders but also on its stakeholders, including employees, customers and suppliers, local communities, the environment, and the society at large. In today’s socially conscious environment, […]

What Is the Impact of Mutual Funds’ ESG Preferences on Portfolio Firms?

Institutional ownership has increased tremendously over the past few decades. This shift in ownership has led to major concerns as to whether institutional investors have the incentives or the tools to be active shareholders. Assessing how effective institutional investors are in their stewardship activities has therefore become critical. However, such an assessment has proven difficult, […]

Who owns tobacco stocks?

The tobacco industry is probably the best example of a morally questionable business, since smoking leads to millions of premature deaths. The Tobacco-Free Finance Pledge is a recent global initiative with a mission to inform, prioritize, and advance tobacco-free finance with the end goal being a world free from tobacco. The pledge has been signed by investors […]