We investigate the role played by the reputation of lead arrangers of syndicated loans in mitigating information asymmetries between borrowers and lenders. We hypothesize that syndications by more reputable arrangers are indicative of higher borrower quality at loan inception and more rigorous monitoring during the term of the loan. We investigate whether borrowers with more reputable lead arrangers realize superior performance subsequent to loan origination relative to borrowers with less reputable arrangers. We further examine whether certification by high‐reputation lead banks extends to the quality of borrowers’ reported accounting numbers. Controlling for endogenous matching of borrowers and lead banks, we find that higher bank reputation is associated with higher profitability and credit quality in the three years subsequent to loan initiation. We also show that bank reputation is associated with long‐run sustainability of earnings via higher earnings persistence, and debt contracting value of accounting via a stronger connection between pre‐loan profitability and future credit quality. We further document that the enhanced earnings sustainability associated with higher reputation lead banks reflects both superior fundamentals and accruals more closely linked with future cash flows.

We delineate key channels through which flows of confidential information to loan syndicate participants impact the dynamics of information arrival in prices. We isolate the timing of private information flows by estimating the speed of price discovery over quarterly earnings cycles in both secondary syndicated loan and equity markets. We identify borrowers disseminating private information to lenders relatively early in the cycle with firms exhibiting relatively early price discovery in the secondary loan market, documenting that price discovery is faster for loans subject to financial covenants, particularly earnings‐based covenants; for borrowers who experience covenant violations; for borrowers with high credit risk; and for loans syndicated by relationship‐based lenders or highly reputable lead arrangers. We then ask whether early access to private information in the loan market accelerates the speed of information arrival in stock prices. We document that the stock returns of firms identified with earlier private information dissemination to lenders indeed exhibit faster price discovery in the stock market, but only when institutional investors are involved in the firm's syndicated loans. Further, the positive relation between institutional lending and the speed of stock price discovery is more pronounced in relatively weak public disclosure environments. These results are consistent with institutional lenders systematically exploiting confidential syndicate information via trading in the equity market.

We investigate whether a borrower's media coverage influences the syndicated loan origination and participation decisions of informationally disadvantaged lenders, loan syndicate structures, and interest spreads. In syndicated loan deals, information asymmetries can exist between lenders that have a relationship with a borrower and less informed, nonrelationship lenders competing to serve as lead arranger on a syndicated loan, and also between lead arrangers and less informed syndicate participants. Theory suggests that the aggressiveness with which less informed lenders compete for a loan deal increases in the sentiment of public information signals about a borrower. We extend this theory to syndicated loans and hypothesize that the likelihood of less informed lenders serving as the lead arranger or joining a loan syndicate is increasing in the sentiment of media-initiated, borrower-specific articles published prior to loan origination. We find that as media sentiment increases (1) outside, nonrelationship lenders have a higher probability of originating loans; (2) syndicate participants are less likely to have a previous relationship with the borrower or lead bank; (3) lead banks retain a lower percentage of loans; and (4) loan spreads decrease.

A few highly successful firms (“superstar firms”) have captured large market shares and earned massive profits in recent decades. We examine whether superstar firms are associated with a greater likelihood of financial distress for firms exposed to them in product markets. Building on recent research, we identify superstars as firms with the highest markups in the industry and whose industry markup share increases over time. We then measure, with product similarity scores, a firm’s overall product market exposure to superstars. We document that firms with greater exposure are more likely to file for bankruptcy. We examine why superstar exposure is associated with bankruptcy and show that firms with the greater superstar exposure exhibit weaker financial performance and greater riskiness. Furthermore, we show that the association between superstar exposure and the likelihood of bankruptcy strengthens when superstars have greater market power.

We investigate how the tone of sell-side debt analysts' discussions about debt-equity conflict events affects the informativeness of debt analysts' reports in debt markets. Conflict events such as mergers and acquisitions, debt issuance, share repurchases, or dividend payments potentially generate asset substitution or wealth expropriation by equity holders. We document that debt analysts routinely discuss these conflict events in their reports. More importantly, discussions about conflict events that we code as negative are associated with increases in credit spreads and bond trading volume. Consistent with the informational value of debt analysts' discussions in secondary debt markets, we find that negatively coded conflict discussions predict higher bond offering yields in the primary bond market. In additional analyses, we measure the tone of debt analysts' discussions based on their disagreement with the tone of equity analysts' discussions and find that the informativeness of debt analysts' reports is higher when our coding indicates that conflict events are viewed negatively by debt analysts but positively by equity analysts.

Prior studies predominantly examine fundamental performance‐driven explanations of loan renegotiations. We contrast with this work by investigating the improvement in secondary loan market trading conditions as a non‐fundamental driver of loan renegotiation. Exploiting a regression discontinuity design around the LSTA 100 Index reconstitution, we find that index‐included loans are around five times more likely to receive interest‐rate–reducing amendments than comparable loans just below the index inclusion threshold. Within‐loan‐package tests confirm that these renegotiations are not driven by changes in the borrower's fundamental performance. The threat of refinancing likely drives this effect, as the results are more pronounced when such threats are more credible.

To mitigate information asymmetry about borrowers in developing economies, digital lenders use machine-learning algorithms and nontraditional data from borrowers’ mobile devices. Consequently, digital lenders have managed to expand access to credit for millions of individuals lacking a prior credit history. However, short-term, high-interest digital loans have raised concerns about predatory lending practices. To examine how digital credit influences borrowers’ financial well-being, we use proprietary data from a digital lender in Kenya that randomly approves loan applications that would have otherwise been rejected based on the borrower’s credit profile. We find that access to digital credit improves borrowers’ financial well-being across various mobile-phone-based well-being measures, including monetary transactions and balances, mobility, and social networks as well as borrowers’ self-reported income and employment. We further show that this positive impact is more pronounced when borrowers have limited access to credit, take loans for business purposes, and obtain more credit.