Managerial Beliefs and Banking Behavior

Damiano B. Silipo (), Giovanni Verga () and Sviatlana Hlebik ()
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Damiano B. Silipo: Università della Calabria (Italy)
Giovanni Verga: Università di Parma (Italy)
Sviatlana Hlebik: Crédit Agricole Cariparma (Italy)

Journal of Financial Services Research, 2023, vol. 64, issue 3, No 4, 431 pages

Abstract: Abstract We use a large sample of US banks to construct a new indicator of managerial beliefs based on bank provisioning. This indicator does not only anticipate a future charge-off but also explains future loan growth and other variables. In particular, the indicator shows that an increase in managerial optimism (pessimism) leads to expanded (tight) lending, leverage, and a riskier (less risky) portfolio. Our findings confirm that widespread managerial optimism (pessimism) prevailed before (during) the 2007-2008 financial crisis and that changes in managerial beliefs played an important role in the lending and leverage cycles.

Keywords: Managerial optimism and pessimism; Banking behavior; Bank’s risk; 2007-2008 financial crisis/crash (search for similar items in EconPapers)
JEL-codes: G01 G02 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10693-023-00407-5

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