Managerial ability and bank loan pricing

Purpose - This paper aims to examine the impact of bank managerial ability on the cost of loans using an extensive data set of US banks from 2001:Q1 to 2021:Q2. Design/methodology/approach - First, the authors use multiple fixed-effects estimation to estimate the impact of managerial ability on bank loan pricing. In addition, the authors also perform different econometrics regression methods to test the robustness of the model including: Prais–Winsten regression, Newey–West regression and the Fama McBeth method, instrumental variable regression, propensity score matching method and quantile regression. Findings - The results show that banks with higher managerial ability tend to provide loans with lower costs, and this effect is stronger at larger banks. In addition, research results from the quantile regression model show that the negative impact of managerial ability on the cost of loans will be stronger at banks with higher lending costs. Originality/value - To the best of the authors’ knowledge, this study is one of the first to investigate this relationship between managerial ability and bank loan pricing from the supply side. In addition, this paper examines the impact of bank managerial ability on the loan costs of banks of different sizes, as well as differs across the distribution of the dependent variable. Therefore, this paper is of particular interest to regulators and policymakers.