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Legal risk and information spillover through private lender reports

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  • de Jong, Abe
  • Kooijmans, Tim
  • Veld, Chris

Abstract

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.

Suggested Citation

  • de Jong, Abe & Kooijmans, Tim & Veld, Chris, 2022. "Legal risk and information spillover through private lender reports," Journal of Financial Markets, Elsevier, vol. 60(C).
    • Handle: RePEc:eee:finmar:v:60:y:2022:i:c:s1386418122000027
    DOI: 10.1016/j.finmar.2022.100706
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    More about this item

    Keywords

    Private information; Legal risk; Covenants; Information spillover; Private debt;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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