Niskanen Jyrki ja Niskanen Mervi | Akateeminen Kirjakauppa

This study examines the use of covenants in Finnish small firms´ loans. Since covenants are rare in Finland, our study concentrates on finding the properties of firms, which are likely to include covenants of any type in their loan contracts. The results show that 72 of the 642 loan contracts examined (11.2 percent) include at least one covenant, and that the average number of covenants is 2.1. Negative covenants are much more common than affirmative covenants in our sample. We use loan characteristics, firm characteristics, and bank relationship variables to explain the use of covenants. There are statistically significant explanatory variables in all three groups. Loans with real estate collateral are less likely to contain covenants than loans with other types of collateral. Convenants are most common in construction firms´ loans (20.7 percent). Large firms are more likely to offer convenants, while the inverse holds for manager-owned firms. Firms with high corporate leverage, high level of investments and high sales growth rate are more likely to offer covenants. Bank relationship lenght, changes of main bank and interbank competition also affect the use of covenants.