Publication Type
Journal Article
Version
submittedVersion
Publication Date
3-2023
Abstract
We provide evidence that changes in lender optimism can lead to excessive fluctuations in credit spreads across the credit cycle. Using data on the real estate properties of loan officers originating large corporate loans, we find that credit spreads overreact to sophisticated lenders' recent local economic experiences, captured by local housing price growth. These effects are only present when borrowers own real estate assets and during times of greater uncertainty about real estate values, i.e., boom-and-bust cycles in housing prices. Our analysis suggests that recent personal experiences shape sophisticated lenders' beliefs about real estate values, which affect their pricing decisions.
Keywords
Personal experiences, Credit cycle, Loan officers, Lender optimism, Sophisticated investors, Real estate prices
Discipline
Corporate Finance | Finance and Financial Management
Research Areas
Finance
Publication
Journal of Financial Economics
Volume
148
Issue
2
First Page
118
Last Page
149
ISSN
0304-405X
Identifier
10.1016/j.jfineco.2023.02.003
Publisher
Elsevier
Citation
CARVALHO, Daniel; GAO, Janet; and MA, Pengfei.
Loan spreads and credit cycles: The role of lenders' personal economic experiences. (2023). Journal of Financial Economics. 148, (2), 118-149.
Available at: https://ink.library.smu.edu.sg/lkcsb_research/7264
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1016/j.jfineco.2023.02.003