Citation

Discussion Paper Details

Please find the details for DP15785 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Corporate Optimism and Bank Lending

Author(s): Filippo De Marco, Julien Sauvagnat and Enrico Sette

Publication Date: February 2021

Keyword(s): borrower default, business expectations, collateral requirements, loan applications and Optimism

Programme Area(s): Financial Economics

Abstract: We study how lenders respond to excessive optimism in the corporate sector. Our identification relies on plausibly exogenous variation in optimism across areas in Italy. We document that firms in optimistic areas hold favorable views about their own business, and that they are more likely to default on their debt. Banks are more likely to deny credit to firms in optimistic areas, but only for loans that cannot be easily collateralized. Our findings provide empirical support for the theoretical prediction that banks' collateral provision reduces the efficiency of the credit market when the corporate sector is prone to excessive optimism.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15785

Bibliographic Reference

De Marco, F, Sauvagnat, J and Sette, E. 2021. 'Corporate Optimism and Bank Lending'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=15785