Information Spillover through Private Lender Reports
42 Pages Posted: 1 Jan 2020
Date Written: December 15, 2019
This paper examines private information spillover from the lending market to markets for public securities. We find that information from private monthly reports to institutional lenders gradually spills over to the public equity market. We observe positive abnormal stock returns after firms provide favorable private reports. After unfavorable private reports, we find negative abnormal returns, as well as increased short interest. This private information leakage is striking and previously undocumented. We demonstrate how traders benefit from private information, as we show that they do not trade immediately upon receiving the private information. Instead, they time their trades to manage both the price impact and the risk of additional information arrival before the scheduled public release of their private information.
Keywords: Private information, Covenants, Information spillover, Private debt
JEL Classification: M41, G32
Suggested Citation: Suggested Citation