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Bank Market Value and Loan Supply

Author

Listed:
  • Mattia Girotti

    (Université Paris-Dauphine, Université PSL, CNRS, DRM, Finance)

  • Guillaume Horny

    (Banque de France)

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.

Suggested Citation

  • Mattia Girotti & Guillaume Horny, 2024. "Bank Market Value and Loan Supply," Journal of Financial Services Research, Springer;Western Finance Association, vol. 66(2), pages 171-192, October.
    • Handle: RePEc:kap:jfsres:v:66:y:2024:i:2:d:10.1007_s10693-024-00430-0
    DOI: 10.1007/s10693-024-00430-0
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    More about this item

    Keywords

    Banks; Market Value; Market Misvaluation; Loan Supply;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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