Abstract

This study examines the information content of risk factor disclosures following private debt issuance. Loan issuance is an information-intensive activity that significantly increases private information production through borrower-lender interactions. To satisfy lenders’ information demand and minimize the likelihood of future violations of debt terms, borrowers are incentivized to learn more about their own risks, which will be reflected in subsequent risk disclosures. We find evidence indicating significant disclosure modifications following loan issuance, and this effect is concentrated among loans for which we predict a greater information demand on borrowers. Further analyses show that more disclosure modifications following loan negotiations result in greater information content, larger risk relevance, and higher information quality of disclosures, as well as lower information risk faced by public market participants. Taken together, these findings suggest that borrower-lender interactions provide opportunities for borrowers to generate fresh information, ultimately benefiting other capital market participants.

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• Keyword(s):
• accounting 110

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