Analysis Of The Debt Covenants’ Effectiveness For Political Association

1. The main purpose of this studyBanks in the credit decision is usually based on the accounting information to determine the solvency and profitability, and as a basis for lending decisions, the role of accounting information reflects the value of its debt covenants. In addition to the accounting information in order to obtain bank loans must also do a lot of work, including the personnel in charge of credit eat, commercial bribery, its purpose is to Latin America to fight to obtain more loans. Thus, accounting information and the "relationship" has become an essential means of two bank loans. If accounting information is a formal institutional arrangements, then the "relationship" there are deep cultural imprint.Chinese "relations," the impact of culture on economic activity has been broad and deep theoretical research and embodies the political association on a global scale, but the mechanism of political association have an impact on economic activity in these studies and no specific analysis. Based on our special institutional background, the government often control the resource allocation process, allocation of scarce resources, at the same time it is also the makers and promoters of the laws and regulations. Therefore, the government’s special status determines their behavior directly affects the financing behavior of enterprises. There have been studies that the accounting information and political relevance of the behavior of bank credit has become an indispensable means of two bank credit, and between these two means will influence each other? And what is the impact mechanism? These issues have not been a good demonstration research in academic community. This paper based on the economics of asymmetric information and reputation of a theoretical basis, background of banks’credit activities, studying the main three levels following;First, the political association as an informal information in the debt covenants can play the role of these two areas:alternative accounting information and adverse selection behavior to reduce the bank; Second, political connections play a signaling role in the debt contract mechanism, whether reputation mechanisms; Third, when the debt contract conflict, political association can play a coordinating mechanism to protect the interests of creditors are not infringed. Attempting to clarify why political relations will the value of the debt covenants of the accounting information to influential and what is the effects mechanism, and as a basis for empirical validation, in order to provide a preliminary empirical evidence to theoretical analysis.2.The primary study content and conclusionThis paper is divided into eight chapters, each chapter is as follows:The first chapter is an introduction, in this chapter, based on the research background clear research objectives, design ideas and logic of this study described an overview of the arrangement of the contents of this article, asked the expected innovation.The second chapter is a literature review, in order to achieve the desired purpose, firstly predicting the role of accounting information, accounting information in credit decisions as well as accounting information starting on the creditor protection, accounting information to tease out the value of debt covenants; Secondly, starting from the political relevance of the concept of and measurement, associated motivation of the political, the politics associated with the impact of the financial activities and political review of the literature associated with reputation mechanism, pointed out that the political relevance of the; value of debt covenants, that is political association can be achieved by reducing the information asymmetry in the contract to its value; Further pointed out that the information asymmetry to a conflict of interest of both parties, and finally discuss the ways of protection from its creditors.The third chapter is the theoretical analysis, First of all debt covenants and incomplete analysis, as defined in the standard contract theory to describe; based on trust theory to analyze the impact of the politics associated with accounting information in bank credit and political relevance of the usefulness of accounting information; Secondly, based on the asymmetric information theory analysis the accounting information before the signing of the debt covenants will be caused by asymmetric information, adverse selection problems and after signing the contract caused by asymmetric information and moral hazard problem; Finally, reputation-based theory to analyze the important role played by the political relevance in the process of debt covenant compliance and breach of contract.From the theoretical analysis, we can drawn that political association can play a signaling role, play a reputation mechanism, reduce claims and liabilities of both the degree of information asymmetry, so as to achieve the purpose of protecting the creditors.The fourth chapter is the analysis and study of the institutional background of assumptions. Firstly, this paper analyzed the basic characteristics of the debtor and creditors of corporate debt capital markets. Followed by analysis of bank shareholders and management of credit capacity of whitewash and its violations of the interests of creditors caused by adverse selection behavior, overviewed comprehensively the conflict of debt covenants,which leads to the conservation status of this stage of China’s capital market creditors. Finally, the paper analysis bank credit risk, finding that there are many limitations in accounting information of listed companies in China, affecting its role in the process of bank credit. Political association as an informal indicator of the bank credit process, it can reduce the degree of information asymmetry between borrowers and lenders to reduce moral hazard in the debt covenants, to play the role of reputation mechanisms, and promote the bank credit. Based on the above analysis, then put forward the hypothesis of this paper, it can provide a good premise:An Empirical Study of the later chapters.The fifth chapter is the empirical test of the political association of the usefulness of accounting information of the debt covenants. This chapter provide direct evidence that political association to reduce the information asymmetry in debt covenants and to protect the interests of creditors.The sixth chapter is the empirical analysis of the mechanism analysis of the politics associated with debt covenants. The test results show that the political association can play a signaling role, to further validate this role of political association, this chapter has given the demand characteristics of the debt covenants conflict on the political association, further complement and consolidate the research topics of this thesis:political association is an important mechanism to protect the interests of creditors. The seventh chapter is the policy recommendations. According to the previous literature review, theoretical and institutional background, in order to better support the conclusions of this paper, the optimal path of debt covenants based on our creditor protection. Then, proposed to establish the optimal path of China’s reputation constraint mechanism. Finally, to allow banks to participate in corporate governance, to the creditor banks has adversely affected the Borrower’s debt financing, governance, thereby protecting the interests of creditors against loss.The eighth chapter is the study concluded. The main conclusions, research limitations and future prospects.3. The main contribution of this dissertationFirstly, this paper based on the analysis of economics and financial theories of the political relevance of accounting information on the mechanism of action of the usefulness of the debt covenants.Secondly, Based on the special institutional background, this paper system analyzes the signaling role of political association in the alternative role of accounting information in debt contracts, as well as political relevance can play. At the same time, enhancing the role of reputation in the process of bank credit, the actual control of people’s political identity and reputation is one of the key factors for us to understand the behavior of corporate finance.Lastly, this paper will enrich the political relevance of creditor protection aspects of the empirical literature, as opposed to the importance of acctrunting information on the debt capital markets, and less political relevance the role of creditor protection.