This paper studies whether banks charge higher or lower interest rates on loans to firms with overconfident CEOs. It establishes a theoretical model to show the relationship between the loan rate and overconfidence of the borrowing firm's CEO. It also conducts empirical analyses to test the...

Using a difference-in-differences approach, we show that relaxation of short-sale constraints helps to filter out low-quality borrowers from the bank loan market. Treated firms that can still borrow from banks enjoy a lower loan spread, compared with control firms without this sorting mechanism....

This paper investigates how bank CEO risk-taking incentives influence bank lending decisions. Consistent with the existing CEO incentive literature, we find that CEOs with higher risk-taking incentives (vega) tend to relax their lending standards in bank loan contracts to pursue higher...