CFOs’ facial trustworthiness and bank loan contracts

Jiyuan Li, Zihui Li and Min Zhang

International Review of Economics & Finance, 2023, vol. 84, issue C, 332-357

Abstract: Using a well-developed machine learning-based image processing algorithm, we investigate whether a bank considers the facial trustworthiness of the chief financial officer (CFO) of a borrower firm for loan contracts. Based on a large sample of public firms in the United States, our results show that banks tend to offer lower loan spreads and are less likely to use collateral for firms with more facially trustworthy CFOs. Further, the results hold when we control the chief executive officers' (CEOs') facial trustworthiness, implying that it is the CFOs who negotiate with the banks about loan contracts. The effect of CFOs' facial trustworthiness on bank loan contracts is more pronounced in small or young firms, and less pronounced for firms in financial distress. Our study adds to the literature on the determinants of bank loan costs and the influence of managers’ facial features on corporate finance and corporate governance.

Keywords: CFO facial trustworthiness; Bank loan; Loan spread (search for similar items in EconPapers)
JEL-codes: D81 D83 G21 G32 M12 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:84:y:2023:i:c:p:332-357

DOI: 10.1016/j.iref.2022.11.038

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