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حسابداری و مالی::
fasb gaap
For this sample of firms we compare the informational properties of PERF COV EARNINGS to those of two FASB GAAP based earnings measures: net income as defined by FASB GAAP (hereafter, NET INCOME) and earnings before interest, taxes, depreciation, and amortization (hereafter, EBITDA).2 Our main focus is to examine whether PERF COV EARNINGS differ from NET INCOME; however, benchmarking PERF COV EARNINGS against EBITDA is also useful for exploring to what extent contractual adjustments beyond interest, taxes, and depreciation shape the properties of PERF COV EARNINGS.
In the next analysis, we use the Basu (1997) measure of asymmetric timely loss recognition to examine the extent of conditional conservatism in PERF COV EARNINGS and FASB GAAP
We find that our sample firms are similar to the broader sample of firms on the Dealscan database on a variety of characteristics including the levels of conservatism and cash flow predictive ability of FASB GAAP earnings.
Our results do not imply that conservative accounting is not desirable for elements of the debt contracts beyond performance covenants, nor do they imply conservatism in FASB GAAP is suboptimal in general.
Thus, existing research provides myriad explanations for the properties observed in FASB GAAP earnings, while our results specifically apply to earnings used in performance covenants in private debt contracts.
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