Managerial Ability and Loan Pricing: Empirical Evidence from Credit Data of a State-owned Commercial Bank

Abstract

Abstract: This paper examines the mechanism of how managerial ability acts on loan pricing and the resultant effect. We use a proprietary loan data of a state-owned commercial bank from 2009 to 2018 as sample and find that managerial ability is significantly negatively associated with loan pricing. The conclusion holds after using instrumental variables and conducting a series of robustness tests. Mechanism tests show that high-ability managers can reduce loan interest rate by reducing firm risk, improving firm information quality and alleviating proxy conflicts. Further analysis shows that the influence of managerial ability on loan pricing is more significant in non-state-owned firms, firms not supported by industrial policies and firms exposed to a more market-oriented financial market. This paper not only enriches the literature in the fields of managerial ability and loan pricing, but also takes managerial ability as a loan pricing factor in practice, thus providing empirical evidence for stimulating entrepreneurship and improving banks’ resource allocation ability.

Key words: managerial ability, loan pricing, enterprise risk, information quality

Tang Yajun, Yuan Chun, Sun Jian, Ma Yunbiao. Managerial Ability and Loan Pricing: Empirical Evidence from Credit Data of a State-owned Commercial Bank[J]. Management Review, 2024, 36(9): 187-205.

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