Do Impressions Matter? Evidence from Bank Loan Contracting

Prof. Feida ZHANG, Associate Professor, The University of Queensland; and China Europe International Business School

Date: 21 September 2022 (Wednesday)
Time: 11:30am – 12:30pm
Venue: Online via Zoom
Host: Prof. Feng TANG, Assistant Professor of Accounting
Zoom Link: https://umac.zoom.us/j/99876357680



Employing machine-learning techniques to measure facial trustworthiness, we investigate whether CEO facial trustworthiness affects bank loan contracting. We find that banks charge 5.4% lower loan spreads on borrowers with trustworthy-looking CEOs than those with non-trustworthy-looking CEOs. The negative association is more pronounced when borrower CEOs are more powerful and less pronounced when banks know more about their borrowers. The results still hold when controlling for borrower and lender fixed effects and conducting change analyses. We also find that banks impose fewer and less strict covenants and are less likely to require collateral for firms with trustworthy-looking CEOs. In addition, we find that CEO facial trustworthiness is associated with a lower probability of bankruptcy and a greater distance to default, indicating that banks act rationally to charge lower spread and impose more favourable non-price terms on borrowers with more trustworthy-looking CEOs. Finally, we show that CFO facial trustworthiness is also associated with lower loan spreads, but the effects are much less than that of CEO facial trustworthiness.



Prof. Feida Zhang is the Associate Professor of Accounting in The University of Queensland and China Europe International Business School. He obtained his PhD from Hong Kong Baptist University. His research investigates accounting information, corporate finance, corporate governance, and many other empirical accounting and finance issues. His papers have been published or accepted in leading academic journals including Journal of International Business Studies, Journal of Financial and Quantitative Analysis, Journal of Corporate Finance (3 papers), European Accounting Review (2 papers), Journal of Business Ethics (3 papers), Accounting Horizons, and so on. His research papers have been accepted for presentation at a number of highly regarded international conferences and won Best Paper Awards from AAA annual conference (2013, 2017) and AFAANZ annual conference (2016).


All are welcome!