TY - JOUR
T1 - Legal risk and information spillover through private lender reports
AU - de Jong, Abe
AU - Kooijmans, Tim
AU - Veld, Chris
N1 - Funding Information: Abe de Jong: Monash Business School, 900 Dandenong Rd, Caulfield East VIC 3145, Australia ([email protected]) and University of Groningen, Nettelbosje 2, 9747 AE Groningen, the Netherlands ([email protected]). Tim Kooijmans: RMIT University, 124 La Trobe St, Melbourne VIC 3000, Australia ([email protected]). Chris Veld: Monash Business School, 900 Dandenong Rd, Caulfield East VIC 3145, Australia ([email protected]). The authors declare that they have no relevant or material financial interests related to the research described in this paper. We thank an anonymous reviewer, Stephen Brown, Tarun Chordia (the editor), Phil Drummond, Huu Nhan Duong (discussant), Philip Fliers, Neal Galpin, Chao Gao (discussant), Andr? Gygax (discussant), Ying Liang (discussant), Lyndon Moore, Gary Tian (discussant), John Turner, Garry Twite, Patrick Verwijmeren, Barry Williams, seminar participants at Monash University, and conference participants at the 8th Behavioural Finance and Capital Markets Conference in Melbourne, the 8th FIRN Annual Conference, the Politics, Stock Markets and the Economy Conference in Adelaide (2018), the 31st Australasian Finance & Banking Conference, and the 10th Financial Markets and Corporate Governance Conference in Sydney. Mark Creado, Yuki Guo, Racheal Liu, Zhaofeng Xu, and Haiying Yin provided excellent research assistance. Publisher Copyright: © 2022 Elsevier B.V.
PY - 2022/9
Y1 - 2022/9
N2 - We investigate the effect of legal risk on private information spillover from syndicated loan borrowers to equity markets. We find evidence that is consistent with leakage of information provided to institutional investors in monthly private reports. We expect that insiders avoid the adverse consequences of noise trading by timing trades closely before public announcements. Consistent with this expectation, during a period of low legal risk, we observe abnormal stock returns just before public earnings releases. When legal risk increases, the information leakage decreases. We also find that reputational risk mitigates insider trading after private information releases.
AB - We investigate the effect of legal risk on private information spillover from syndicated loan borrowers to equity markets. We find evidence that is consistent with leakage of information provided to institutional investors in monthly private reports. We expect that insiders avoid the adverse consequences of noise trading by timing trades closely before public announcements. Consistent with this expectation, during a period of low legal risk, we observe abnormal stock returns just before public earnings releases. When legal risk increases, the information leakage decreases. We also find that reputational risk mitigates insider trading after private information releases.
KW - Covenants
KW - Information spillover
KW - Legal risk
KW - Private debt
KW - Private information
UR - https://research.monash.edu/en/publications/68d5f2e6-ca98-48f6-b9a0-c5d7dd160bfd
U2 - 10.1016/j.finmar.2022.100706
DO - 10.1016/j.finmar.2022.100706
M3 - Article
SN - 1386-4181
VL - 60
JO - Journal of Financial Markets
JF - Journal of Financial Markets
M1 - 100706
ER -