Information Dissemination Technologies and Syndicated Loan Structure: Evidence from EDGAR

Abstract

The lead arranger of a syndicated loan is responsible for screening the borrower and negotiating the loan agreement, and participant lenders have relatively little interaction with the borrower. Thus, a key friction in syndicated loan markets is information asymmetry between lead arrangers and participant lenders regarding borrower credit risk. We examine how a technology-based reduction in disclosure processing costs helps participant lenders mitigate this information asymmetry with the lead arranger. We find that participant lenders hold a larger aggregate share of a syndicated loan after a borrower begins filing reports through the SEC’s EDGAR system. Holding the borrower constant, we further find that individual participant lenders heterogeneously search borrower EDGAR filings and that searches are associated with larger individual participant lender loan shares. Cross-sectional analyses corroborate our interpretation that the key mechanism is the mitigation of individual participant lenders’ information asymmetry with the lead arranger. Overall, we provide novel evidence on the role of information dissemination technologies in facilitating capital allocation within syndicated loan markets.

Keywords: EDGAR, syndicated loans, individual participant lenders, information technologies, information asymmetry

JEL Classification: D82, D83, G21, M40