Disclosure Incentives and Bondholder Bargaining Power

We study how financially distressed firms adjust disclosure when creditor bargaining power increases. Exploiting the 2014 Marblegate Asset Management v. Education Management Corporation ruling, which unexpectedly strengthened public bondholders' ability to hold out in out-of-court restructurings, we find that distressed firms with publicly traded debt significantly reduce voluntary disclosure following the ruling. The decline is concentrated among firms with high blockholder ownership, consistent with informed shareholders curtailing public information to limit bondholders' ability to assess continuation values and coordinate holdout strategies. Disclosure reductions persist among firms with stable capital structures, ruling out financing switching as an alternative explanation. Remaining disclosures become more complex and litigious and are associated with lower likelihoods of positive market reactions. These changes coincide with a deterioration in market information environments and more restrictive covenants in subsequent bond issues. Our findings establish disclosure as a strategic instrument in debt renegotiation, with implications for financial reporting, creditor protection, and restructuring regulation.