Arbeitspapier

Bank manager sentiment, loan growth and bank risk

We build a textual score measuring the tone of bank earnings press release documents. We use this measure to define bank manager sentiment as the variation in the textual tone score which is orthogonal to bank-specific and macroeconomic fundamentals. Using this definition of sentiment, we present evidence on how bank managers' systematic overoptimism affects the amount of credit that they supply to the real sector. Our empirical evidence suggests that decisions on the volume of new loans partially depend on past realizations of economic fundamentals, implying that loan growth and contemporaneous economic fundamentals might be systematically disconnected. Furthermore, we show that over-optimism on the part of bank managers spills over to their equity investors, who seem to perceive banks with high bank manager sentiment as having a lower systemic risk.

Language
Englisch

Bibliographic citation
Series: ZEW Discussion Papers ; No. 22-066

Classification
Wirtschaft
Financial Economics: General
General Financial Markets: General (includes Measurement and Data)
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Behavioral Finance: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets‡
Subject
sentiment
text data
extrapolation
loan growth
systemic risk

Event
Geistige Schöpfung
(who)
Brückbauer, Frank
Cezanne, Thibault
Event
Veröffentlichung
(who)
ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
(where)
Mannheim
(when)
2022

Handle
Last update
10.03.2025, 11:42 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Brückbauer, Frank
  • Cezanne, Thibault
  • ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung

Time of origin

  • 2022

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