The Impact of Managerial Overconfidence on the Loan Contracts:Evidence from Bank Loans in China

• Main Authors: MIO, KIN, 苗健
• Other Authors: Chen, Hsiao-Jung
• Format: Others
• Language: zh-TW
• Published: 2017
• Online Access: http://ndltd.ncl.edu.tw/handle/94877208704937901505

碩士 === 南臺科技大學 === 財務金融系 === 105 === Ho et al.(2016) and Chen et al.(2016) explored the impact of CEO overconfidence on loan contracts from the perspective of banks and borrowers in the United States respectively. The former studies showed that banks with overconfident CEOs were more likely to reduce their lending standards, and increased their leverage than other banks prior to the global crisis, making them more vulnerable to the shocks resulting from the crisis.The latter studies revealed that banks favor firms with overconfident CEOs, such that these firms enjoy lower loan rates and higher loan approval rates. This occurs especially when companies have rich firm-specific growth opportunities or during prosperous periods. However, all of the research has not considered the interaction effects of borrowers and lenders overconfidence on bank loan amounts and loan interest rates. To fill this gap in the literature, this thesis uses a sample consisting of listed firms and banks in China over the period from 2012-2015 to investigate the effects of managerial overconfidence of banks and borrowers on loan amounts and interest rates. This study estimates an overconfidence measure resulting from two research methods which have been utilized. The first method is based on information extracted from press releases, and the second method is based on CEO stock holding. The empirical results show that borrowing firms with overconfident managers have more loan amounts without controlling the behavioral tendencies of bank managers. On the contrary, banks with overconfident managers and banks with more news exposure reduce loan interest rates of borrowing firms without controlling the behavioral tendencies of firm managers, but have no significant effects on loan amounts.This study further considers the behaviors of borrowers and lenders simultaneously. When overconfident bank managers face the loan contracts of borrowing firms with non-overconfident managers, loan interest rates will be reduced though there are no significant effects on loan amounts. If managers of banks and firms are non-overconfident simultaneously, there are no significant effects on loan amounts, but the loan interest rates will be increased. Consequently, in China, borrowing companies should hire or motivate their current managers to be more confident to obtain more loan amounts. Moreover, if they seek to enjoy low interest rates, they are recommended to raise their media exposure, encourage or hire non-overconfident managers and borrow from banks with overconfidence CEO. Keywords: Overconfidence, Bank loan, Loan amounts, Loan Interest Rates