Events

Mr. Daniel Rabetti
Ph.D. Candidate in Business Administration
Coller School of Management
University of Tel Aviv

Assessing the Paycheck Protection Program (PPP) — a financial rescue program designed to cover firms’ payroll expenses during the COVID-19 pandemic—I document that the decision of managers whether to reveal the bailout loan details to the public dominates the disclosure strategy of firms that engage in relationship lending, especially for longer and more intense relationship. Examining potential economic channels, I find that strategic disclosure is unlikely to be driven by habit formation or liquidation concerns. Instead, the evidence suggests that strategic disclosure is driven by relationship capital considerations, where firms incur the costs of disclosing unfavorable news to reduce lenders’ monitoring concerns in exchange for future lending benefits. Overall, the findings highlight a novel economic channel for the release of unfavorable information in which relationship lending has a disciplinary effect on firms’ strategic disclosure, especially during times of crisis when debt monitoring becomes more relevant.