N°26-18: Do Machine-Readable Disclosures Fuel Nonbank Lending?

We study how reductions in public-information processing costs affect nonbank participation in syndicated loans. Exploiting the SEC's staggered introduction of machinereadable disclosures as an exogenous shock to information-processing costs, we find that lower costs increase nonbank participation but do not affect their likelihood of serving as lead arrangers. The effect is significant only among nonbanks without industry expertise. Reduced processing costs facilitate entry by new nonbanks but not banks. Following the shock, nonbanks rely less on relationship-based signals and more on standard financial metrics. Higher pre-loan automated EDGAR downloads predict greater nonbank participation, consistent with information-processing costs as the mechanism.