Dissemination of Corporate Disclosures in the Stock Markets and the Cost of Bank Loans
Dr. Alvis Lo
Associate Professor of Accounting
Carroll School of Management
Boston College
We study how regulatory initiatives expanding the dissemination of corporate disclosures in the stock markets might influence the cost of bank loans. The tests exploit the staggered adoption of the EDGAR system required by the SEC in the 1990s, which replaced cumbersome paper filing dissemination with readily-accessible electronic documents. While banks were insensitive to borrowers’ EDGAR adoption, they lowered loan spreads when more of the firms in the borrower’s industry adopted EDGAR, which allowed banks to easily use peer information to help assess borrower creditworthiness. The results are more evident when banks lent to unfamiliar industries and borrowers. Overall, our study highlights that stock market interventions to disseminate disclosures can help address informational frictions even in the private debt sector, suggesting broader economic consequences of regulatory disclosures than previously known. The findings also inform the underexplored interconnections between the public market and banking institutions within the larger U.S. financial system.
