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Strategic secrecy in loan covenant disclosures
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Many companies choose not to disclose detailed information about their loan covenants despite regulatory requirements. This article explores the strategic reasons behind this decision, focusing on the potential costs of such disclosure and the implications for financial and regulatory practices. Analysis of a large sample of US loans suggests that companies that likely face tight initial covenants and frequent renegotiations are more likely to withhold these details to avoid negative reactions from other creditors such as trader creditors and bondholders.
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