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March 18, 2026The Accounting Review

The Role of Debt Covenants in Assessing the Economic Consequences of Limiting Capitalization of Exploration Costs.

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Authors

MBM. Edgar BarrettCFCarol Ann FrostUniversity of North TexasVBVictor L. BernardUniversity of Illinois Urbana-Champaign

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Overview

Examines the impact of a SEC-mandated accounting procedure on loan agreements in oil and gas firms, implying minimal economic consequences.

Key Points

  • The aim is to assess how accounting mandates influence loan covenants and the economic outcomes for firms.
  • Examined 24 loan agreements from 18 oil and gas firms
  • Analyzed effects of SEC requirement from May 6, 1986
  • Identified write-offs of exploration costs for the first quarter of 1986
  • No observable economic consequences found for affected firms
  • Large financial statement differences noted due to accounting changes
  • Technical violations of loan covenants occurred, yet had no impact

Cite This Study

Barrett et al. (1989) studied this question.

synapsesocial.com/papers/69ba42bc4e9516ffd37a346fhttps://doi.org/10.2308/tar-4478123
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Also Consider

Synapse has enriched 5 closely related papers on similar clinical questions. Consider them for comparative context:

  1. 1Borrower and Lender Perceptions of Accounting Information in Corporate Lending Agreements.1995
  2. 2Stock Market Effects of the Closeness to Debt Covenant Restrictions Resulting from Capitalization of Leases.1993
  3. 3The Effect of the Firm's Capital Structure on the Choice of Accounting Methods.1980
  4. 4Costs of Technical Violation of Accounting-Based Debt Covenants.1993 · 2 citations
  5. 5Financial Statement Disclosure of Accounting-Based Debt Covenants.1991