Did Regulation Fair Disclosure Affect Credit Markets?

41 Pages Posted: 23 Mar 2012 Last revised: 6 May 2021

See all articles by Yutao Li

Yutao Li

University of Lethbridge

Anthony Saunders

New York University - Leonard N. Stern School of Business

Pei Shao

Dhillon School of Business, University of Lethbridge

Date Written: January 24, 2014

Abstract

This study assesses whether the implementation of Regulation Fair Disclosure (Reg FD) has affected the quantity and quality of information in credit markets. We find that, after Reg FD, borrowing from new lenders was associated with a higher loan spread and this result remains robust after we control for the endogenity of firms’ choice to switch to new lenders. In addition, we also find that, after Reg FD, (1) borrowers became more dependent on relationship lending; (2) lead lenders retained a higher loan share; and (3) a typical loan syndicate involved a smaller number of participating lenders. All of these results hold robust after we use private firm loans as a control for the effect of the 2001 economic recession. We interpret these results as evidence of an increased level of information asymmetry in credit markets after Reg FD.

Keywords: Regulation Fair Disclosure, Relationship Banking, Information Asymmetry, Cost of Debt, Loan Bid-Ask Spread, Syndication Structure

JEL Classification: G21, G28, D82

Suggested Citation

Li, Yutao and Saunders, Anthony and Shao, Pei, Did Regulation Fair Disclosure Affect Credit Markets? (January 24, 2014). Available at SSRN: https://ssrn.com/abstract=2027758 or http://dx.doi.org/10.2139/ssrn.2027758

Yutao Li

University of Lethbridge ( email )

Lethbridge, Alberta T1K5E8
Canada

Anthony Saunders

New York University - Leonard N. Stern School of Business ( email )

44 West 4th Street
9-190, MEC
New York, NY 10012-1126
United States
212-998-0711 (Phone)
212-995-4220 (Fax)

Pei Shao (Contact Author)

Dhillon School of Business, University of Lethbridge ( email )

345 6 Ave SE
Calgary, Alberta T2G 4V1
Canada
+14033801845 (Phone)
T2G 4V1 (Fax)

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