Essays on Corporate Debt, Information, and Incentives

The primary objective of this thesis is to contribute to the literature on corporate debt by examining how to protect creditor interests from both corporate and regulatory perspectives. My research relies on novel data collected from SEC filings, including proxy statements (Form DEF 14A) and syndicated loan contracts (Exhibits of Form 8-K, 10-Q, or 10-K). The first chapter considers creditors' interests within the framework of corporate compensation design, which is a joint work with David M. Reeb and Wanli Zhao. It contributes to the compensation literature by offering new evidence of using debt-related performance metrics (DPMs), such as credit ratings and debt-to-EBITDA ratios, in executive compensation contracts as a strategic response to the agency costs of debt. Our study is among the first to identify and examine a comprehensive set of DPMs. We show that borrowers obtain less debt financing in periods of high market credit risk while using DPMs more frequently as a response. The likelihood of including DPMs increases after creditors' monitoring incentives increase due to debt maturity pressure or credit quality deterioration. Before new borrowing, either in the form of bonds or loans, firms tend to include DPM in the compensation contract. More importantly, we find that the borrowing costs decrease after DPM inclusion. The second chapter, which is solo-authored, considers creditors' interests within the context of modern technology used for private information dissemination. I focus on the significant communication and coordination costs in the syndicated loan market. I argue that technological advancements can mitigate these costs, thereby influencing the dynamics of the lending market. Specifically, using a novel dataset on the adoption of centralized information platforms—a tool facilitating communication between lead banks (arrangers) and participating lenders—I document a significant upward trend in platform adoption since the early 2000s. Leveraging the staggered adoption across arrangers, I find that following the initial adoption, arrangers facilitate greater volumes of syndicated lending, particularly to more leveraged borrowers. Platform adoption is associated with a broader participation base. This effect likely results from enhanced capacity to handle and process complex contracts for arrangers and participants. Importantly, this increased activity does not correspond with a higher loan default rate. The third chapter, which is solo-authored, considers creditors' interests within the setting of mandatory disclosure of syndicated loan contracts. The SEC mandates the disclosure of syndicated loan contracts, yet little is known about the implications of this type of disclosure for the lending market. I argue that the disclosed loan contracts can convey hidden signals to outside lenders. Empirically, by analyzing the loan contracts disclosed via EDGAR, I observed that most contracts have been searched by outside lenders. Contracts with greater informational value, such as those involving riskier borrowers or larger loan arrangements, attract more attention. These search behaviors persist over time. I further investigate how these search behaviors affect lenders' subsequent loan contract designs. The results indicate that the search record does not significantly impact their pricing strategies but is associated with their covenant designs. The inadequacy of covenant information in other databases may explain these findings. Overall, these findings highlight the informational role of disclosed loan contracts in SEC filings for outside lenders.