Organisations typically have a number of contractual arrangements with debtholders, with many covenants written to incorporate accounting numbers.

(a) Why would an organisation agree to enter into such agreements with debtholders?

(b) On average, do debtholders gain from the existence of such agreements?

Positive Accounting theorists typically argue that managers can reduce political costs by simply adopting an accounting method that leads to a reduction in reported income. Does this imply anything about the perceived efficiency of those parties involved in the political process and, if so, what perception is held?