Bank Market Value and Loan Supply

Mattia Girotti and Guillaume Horny
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Mattia Girotti: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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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)
Date: 2024
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Published in Journal of Financial Services Research, 2024, ⟨10.1007/s10693-024-00430-0⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04659945

DOI: 10.1007/s10693-024-00430-0

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