How Do Banks Facilitate Corporate Innovation? Evidence from Bank CEO Optimism

62 Pages Posted: 25 Jan 2017 Last revised: 17 Jul 2017

See all articles by Dien Giau Bui

Dien Giau Bui

National Taiwan University, Department of Finance, Students

Yehning Chen

National Taiwan University

Chih-Yung Lin

National Chiao-Tung University

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics

Date Written: January 25, 2017

Abstract

We study whether bank CEO optimism (optimistic bank) plays a role in technological progress. We find that optimistic banks lend more to smaller/riskier firms and charge higher loan spreads to compensate for the higher risk exposures. More interestingly, these optimistic banks prefer lending to risky firms that engage in more corporate innovation. Our results show that, compared with other borrowers, these risky borrowers spend more on R&D after obtaining loans from optimistic banks. We also find that these firms yield higher innovation output and achieve greater market valuation. Overall, our findings suggest bank CEO optimism helps to facilitate corporate innovation.

Keywords: CEO overconfidence, bank lending, R&D, patents and citations, Tobin’s q

JEL Classification: G21, G31, G32

Suggested Citation

Bui, Dien Giau and Chen, Yehning and Lin, Chih-Yung and Lin, Tse-Chun, How Do Banks Facilitate Corporate Innovation? Evidence from Bank CEO Optimism (January 25, 2017). Available at SSRN: https://ssrn.com/abstract=2905733 or http://dx.doi.org/10.2139/ssrn.2905733

Dien Giau Bui

National Taiwan University, Department of Finance, Students ( email )

1, Sec. 4, Roosevelt Road
Taipei
Taiwan

Yehning Chen

National Taiwan University ( email )

1 Sec. 4, Roosevelt Road
Taipei, 106
Taiwan

Chih-Yung Lin (Contact Author)

National Chiao-Tung University ( email )

Taiwan

Tse-Chun Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

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