loan contracts by measuring the similarity of financial covenant definitions. We

document that securitization of syndicated loans by Collateralized Loan Obligations

(CLOs) is associated with greater covenant standardization. Consistent with CLO

stakeholders’ needs to decrease information acquisition and processing costs through

standardization, we find that financial covenant similarity reduces information asymmetry

about covenant terms between debt market participants. Specifically, covenant similarity

is associated with an increase in the liquidity of securitized loans in the primary and

secondary loan markets. In addition, we find that covenant similarity is associated with

greater agreement between credit rating agencies.

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