Thanks for your question.

It's hard to tell exactly how bad the damage is without seeing a photo but from your description, it sounds severe. This kind of damage is called girdling. It keeps nutrients and water from moving up the tree and you might see leaf drop or wilting as a result. Covering the wound or using Tree Kote is usually ineffective for this use and might even promote the growth of moisture loving fungi. Sadly, you might have to take a wait an see approach as once the damage is done, there is no going back. At best the tree's cambium might grow over the damage but a scar will always remain, and a section of the inner wood might be exposed which can potentially rot in the future.

Here is some additional information.

http://hyg.ipm.illinois.edu/article.php?id=808