Tag Archives: incentives

Blockholder and CEO Wealth-Performance Sensitivity

By | September 12, 2022
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Firm owners do not run the firm. Instead, they delegate the job to managers with expertise. Such delegation inevitably gives rise to the misalignment of interests between the firm owners and managers, as the latter do not share the benefits of the firm’s success as much. Shareholders, who are the firm owners, thus need to… Read More »

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

By | June 9, 2021
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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… Read More »