Corporate Overconfidence and Bank Lending

We study how banks lend to overconfident managers. For identification, we exploit variation in pupils' overconfidence across areas in Italy. We find that overconfident borrowers default more, pay higher loan rates and are more likely to be denied credit. Consistent with a model of bank lending where borrowers have biased beliefs, banks that ask for more collateral are less likely to restrict credit to overconfident borrowers. However overconfident borrowers, unlike those with high credit risk, are not disciplined by collateral requirements, as they invest and default more when they borrow from banks that rely more on collateral

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Corporate Overconfidence and Bank Lending
  • Published on 11/02/2022
  • FR
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Updated on: 11/02/2022 15:26