Corporate Optimism and Bank Lending

63 Pages Posted: 8 Feb 2021

See all articles by Filippo De Marco

Filippo De Marco

Bocconi University - Department of Finance; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research; CEPR Financial Economics

Julien Sauvagnat

Bocconi University; Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research

Enrico Sette

Bank of Italy

Multiple version iconThere are 2 versions of this paper

Date Written: February 5, 2021

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.

Keywords: optimism; business expectations; loan applications; borrower default; collateral requirements.

JEL Classification: G41, G21

Suggested Citation

De Marco, Filippo and Sauvagnat, Julien and Sette, Enrico, Corporate Optimism and Bank Lending (February 5, 2021). Available at SSRN: https://ssrn.com/abstract=3761940 or http://dx.doi.org/10.2139/ssrn.3761940

Filippo De Marco (Contact Author)

Bocconi University - Department of Finance ( email )

Department of Finance
Via Roentgen 1
Milano, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

CEPR Financial Economics ( email )

London
United Kingdom

Julien Sauvagnat

Bocconi University ( email )

Via Sarfatti, 25
Milan, MI 20136
Italy

Bocconi University - IGIER - Innocenzo Gasparini Institute for Economic Research ( email )

Via Roentgen 1
Milan, 20136
Italy

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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