We study whether and how publicizing internal information affects the value of financial markets to the real economy. By publicizing corporate filings, the Securities and Exchange Commission’s EDGAR (Electronic Data Gathering, Analysis, and Retrieval) web platform reduces the cost of acquiring internal information for outsiders and so makes it relatively less attractive to gather external information. We find that the staggered introduction of EDGAR reduced the sensitivity of firm investment to prices, consistent with prices being less informative to managers due to the crowding out of external information gathering. This crowding out effect is stronger when outsiders’ incentives for gathering information are stronger and for firms that rely more on external information. Our findings suggest that policies designed to “level the playing field” by publicizing internal information can have significant unintended consequences by reducing the informativeness of prices for real decisions.

We use a threshold-based design to study ex post discretion in lenders’ contractual enforcement of covenant violations. At preset thresholds, lenders enforce contractual breaches only infrequently, but this enforcement is associated with material consequences (e.g., fees and renegotiations). Enforcement varies significantly over time and peaks when credit conditions are tightest, indicating that enforcement is procyclical. Costly coordination reduces enforcement: Syndicates with ex ante restrictive voting requirements enforce at lower rates. Consistent with theories of lender competition and implicit contracting, enforcement rates are lower for borrowers with access to alternative sources of financing and well-reputed lead arrangers.

To meet short-term benchmarks, lenders may alter their monitoring behavior, providing a channel for short-termism to spill over to their borrowers. We find that short-termist lenders are significantly more likely to enforce covenant breaches. This behavior is pronounced when performance benchmarks are precise or salient, and when managers have high pay-performance sensitivity, but not when they face strong shareholder governance. Affected borrowers are more likely to switch lenders, pay higher spreads on renegotiated loans, and reduce investment. Our findings suggest that bank managers trade off relationship capital for income-boosting fees and term changes from covenant enforcement to meet earnings benchmarks.