Dividend Covenants and Income Measurement

Dividend Covenants and Income Measurement This paper constructs a theory of dividend restrictions in incomplete markets in an attempt to better understand the role of accounting constructions in optimal dividend restrictions. An entrepreneur, through his company, borrows money from a lender, and repays the debt from a stream of stochastic cash flows. Dividend restrictions are used to balance insolvency costs against the costs of accumulating surplus cash. Of particular concern is whether optimal dividend restrictions can be characterized as defining an accounting-earnings-based reservoir available for dividends, and whether earnings calculated for this purpose exhibit conservatism. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Accounting Studies Springer Journals

Dividend Covenants and Income Measurement

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 2001 by Kluwer Academic Publishers
Subject
Business and Management; Accounting/Auditing; Corporate Finance; Public Finance
ISSN
1380-6653
eISSN
1573-7136
D.O.I.
10.1023/A:1011334120714
Publisher site
See Article on Publisher Site

Abstract

This paper constructs a theory of dividend restrictions in incomplete markets in an attempt to better understand the role of accounting constructions in optimal dividend restrictions. An entrepreneur, through his company, borrows money from a lender, and repays the debt from a stream of stochastic cash flows. Dividend restrictions are used to balance insolvency costs against the costs of accumulating surplus cash. Of particular concern is whether optimal dividend restrictions can be characterized as defining an accounting-earnings-based reservoir available for dividends, and whether earnings calculated for this purpose exhibit conservatism.

Journal

Review of Accounting StudiesSpringer Journals

Published: Oct 3, 2004

References

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