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Sunshine and bank lending

Author

Listed:
  • Li, Donghui
  • Qi, Xuanchang
  • Sun, Jian
  • Yuan, Chun
  • Zhu, Liyi

Abstract

This study uses a unique proprietary loan-level dataset from a state-owned Chinese commercial bank to examine how sunshine-induced emotions influence loan pricing decisions made by high-level loan officers who would be punished for loan defaults. Our findings reveal that an increased intensity of sunshine at loan officers' workplace can increase loan pricing for borrowers. The result can be explained by the mood channel: sunshine induces a positive mood among loan officers leading to greater risk aversion in their loan pricing decisions, known as the mood maintenance effect. This effect is magnified for firms with high risk, high bank–firm information asymmetry, and in locations characterized by less bank competition. Our main results are still valid after taking into account various robustness issues and endogeneity concerns.

Suggested Citation

  • Li, Donghui & Qi, Xuanchang & Sun, Jian & Yuan, Chun & Zhu, Liyi, 2024. "Sunshine and bank lending," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    • Handle: RePEc:eee:finana:v:96:y:2024:i:pb:s1057521924006100
    DOI: 10.1016/j.irfa.2024.103678
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    More about this item

    Keywords

    Sunshine; Mood; Risk aversion; Bank loan pricing;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • 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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