Bank beliefs and firm lending: evidence from Italian loan-level data

Paolo Farroni () and Jacopo Tozzo ()
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Paolo Farroni: Bank of Italy
Jacopo Tozzo: Bank of Italy

No 1469, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We use a novel loan-level dataset containing borrower-specific probability of default to estimate a structural learning model where bankers endowed with diagnostic expectations receive noisy signal about firms' fundamentals and assess their creditworthiness. We find that: (i) intermediaries tend to overreact to both micro news and macro signals; (ii) the degree of overreaction is heterogeneous among banks; (iii) overreacting bankers lower (raise) interest rates more than rational ones, increase (decrease) loan size; and (iii) the probability of issuing a new loan rises (falls) when bankers receive positive (negative) signals.

Keywords: banks; expectations; credit risk (search for similar items in EconPapers)
JEL-codes: D22 D84 G21 L13 (search for similar items in EconPapers)
Date: 2024-11
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