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Debt covenants serve as an integral part of contractual terms in lending agreements

Debt covenants serve as an integral part of contractual terms in lending agreements. Lenders use covenants to directly monitor borrowers and to protect against credit risks. Debt covenants entail monitoring and enforcement costs. Further, the ex-ante use of numerous and overly restrictive covenants potentially constrains operating flexibility by precluding managers from taking optimal decisions, e.g., accepting investment opportunities that maximise the firm’s value ex-post. Requirement Discuss and analyse the above statement in the context of Positive accounting theory.Your arguments for task 1 have to be supported by relevant academic refereed articles (at least 6). You should provide evidence that you have carefully examined the literature, understand it, and have been able to summarise its essential content by integrating these articles into your own arguments and perspective. Task 1 is to be completed as a Group assignment, appendices and the cover page. The actual word count must be stated on the cover page of the assignment. Word limits allow the student to structure the assignment to allow for the preparation of an informative yet succinct report. . The formation of a group must be achieved by students self-enrolling into a group on CloudDeakin. Students must be careful to choose their group membersA

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