The Impact of FASB Staff Position APB 14-1 on Corporate Financing: A Debt Contracting Perspective
Bibliographic record
Abstract
Using a set of hand-collected data, we study the economic consequences of FASB Staff Position APB 14-1, which was adopted in 2008 and intended to increase reported interest expense and decrease reported leverage. First, we document that issuers are more likely to respond to APB 14-1 by reducing the outstanding amount of cash-settled convertible debt when they are more able to bear the cost of repurchase. Second, we explore the debt contracting explanations for issuers’ repurchase decisions. In particular, we focus on the contracting practice for GAAP changes and the inclusion of financial covenants related to interest coverage ratios. We find that issuers are less likely to repurchase the outstanding cash-settled convertibles when their bank loan contracts allow them to request a freeze on GAAP provisions to exclude mandatory GAAP changes in calculating accounting-based covenants. Further, when firms’ bank loan contracts contain financial covenants related to interest coverage ratios, issuers are more likely to repurchase outstanding cash-settled convertibles to avoid technical default due to the higher reported interest expense resulting from requirements under APB 14-1. These empirical results are consistent with the notion that firms do respond to mandatory GAAP changes when they are more able to afford the cost of such responses. Furthermore, debt contracting practices can help explain firms’ decisions to respond to mandatory GAAP changes.
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How this classification was reachedexpand
Full frame machine prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. The Gemma side is a direct model label for every work in the frame, read from the title-only record. The Codex side is a classifier learned from the 10,348 direct Codex labels and calibrated to design-weighted sample rates; fields without enough sample support carry no Codex call. Candidate is the union of the two sides; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels.
Distilled classifier scores by category (both heads)
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.009 | 0.039 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.002 | 0.002 |
| Science and technology studies | 0.001 | 0.001 |
| Scholarly communication | 0.003 | 0.001 |
| Open science | 0.001 | 0.001 |
| Research integrity | 0.001 | 0.002 |
| Insufficient payload (model declined to judge) | 0.006 | 0.001 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one source (direct Gemma or distilled Codex), not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".