Do Lenders Influence Borrowers’ Mandatory Disclosures? Evidence From Redacted Credit Agreements

Abstract

I examine whether lender incentives are related to the redaction or non-disclosure of potentially material information from credit agreements of public firms. Using a novel dataset, I find evidence that when lenders invest more in screening and monitoring the borrower or when lenders earn abnormal profits from the loan, credit agreements are more likely to have potentially material information redacted. Furthermore, consistent with the notion that the withholding of information from credit agreements gives current lenders an information advantage, I find that borrowers with redacted credit agreements are more likely to issue subsequent loans with the same lead arranger. Finally, a detailed analysis of credit agreements suggests that firms often withhold potentially material information without the Security and Exchange Commission’s granting a request for confidential treatment.

Keywords: Disclosure, Banks, Redacted Credit Agreements, Redacted Disclosure

JEL Classification: G32, G21, C78, L14