Loan spreads and credit cycles: The role of lenders’ personal economic experiences

Daniel Carvalho, Janet Gao and Pengfei Ma

Journal of Financial Economics, 2023, vol. 148, issue 2, 118-149

Abstract: We provide evidence that changes in lender optimism can lead to excessive fluctuations in credit spreads across the credit cycle. Using data on the real estate properties of loan officers originating large corporate loans, we find that credit spreads overreact to sophisticated lenders’ recent local economic experiences, captured by local housing price growth. These effects are only present when borrowers own real estate assets and during times of greater uncertainty about real estate values, i.e., boom-and-bust cycles in housing prices. Our analysis suggests that recent personal experiences shape sophisticated lenders’ beliefs about real estate values, which affect their pricing decisions.

Keywords: Personal experiences; Credit cycle; Loan officers; Lender optimism; Sophisticated investors; Real estate prices (search for similar items in EconPapers)
JEL-codes: E32 G21 G24 G32 G41 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X23000302
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:148:y:2023:i:2:p:118-149

DOI: 10.1016/j.jfineco.2023.02.003

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().