Nonfinancial Disclosure Mandates and Private Lending

Abstract

Utilizing the staggered implementation of environmental and social (E&S) disclosure mandates in 31 countries spanning from 2000 to 2017, we discover that lenders charge (approximately 18 basis points) less on bank loans and stipulate less restricted loan contract terms when the borrower’s country is subject to E&S information disclosure mandates. The negative relationship between E&S disclosure mandates and bank loan costs is more pronounced among loan facilities with pre-existing bank lending relationships or when borrowers face greater market attention. Further analysis shows that better country-level information environments strengthen this negative impact of E&S disclosure mandates. Our study suggests that non-financial ESG disclosure not only mitigates information asymmetries in private lending but also significantly reduces the cost of capital worldwide.

Keywords: ESG disclosure, private lending, environmental and social disclosure, bank lending relationship, information environment