Bank Market Value and Loan Supply

Mattia Girotti () and Guillaume Horny
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Mattia Girotti: Université Paris-Dauphine, Université PSL, CNRS, DRM, Finance

Journal of Financial Services Research, 2024, vol. 66, issue 2, No 3, 192 pages

Abstract: Abstract We study how the misvaluation of banks affects their loan supply by considering proprietary data on 83 banks from 11 euro-area countries from 2010Q1 to 2019Q4. We measure bank market value by the Tobin’s Q and identify the impact of nonfundamental changes in bank market value by saturating our specifications with observable bank fundamentals and analyst forecasts on future bank performance as well as several fixed effects. We show that nonfundamental rises in market value lead a bank to increase its loan supply to firms and households, even when the bank’s capital structure constraint is not binding. Our findings are consistent with a mechanism in which bank managers cater to the misperceptions of stock market investors.

Keywords: Banks; Market Value; Market Misvaluation; Loan Supply (search for similar items in EconPapers)
JEL-codes: G21 G31 G32 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10693-024-00430-0

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