Accounting standards and debt covenants: Has the “balance sheet approach” led to a decline in the use of balance sheet covenants?

▶ In recent years, balance sheet covenants are used less frequently in debt agreements. ▶ I consider the role of accounting standards in this decline. ▶ Specifically, I examine whether the shift to the “balance sheet approach” has influenced covenants. ▶ I find that accounting standards are associated with balance sheet covenant use. ▶ The same is not true of income statement covenant use, which has not changed.