Conference Agenda

We examine whether overconfident bank CEOs mitigate or amplify risk amid increasing Economic Policy Uncertainty (EPU). Our findings indicate the latter, with banks led by overconfident CEOs then assuming almost 2% more risk on average than other banks. We also find that this effect does not depend on the CEO’s gender or the political inclination of the state where the bank is headquartered. Overconfident CEOs contribute to high loan impairments during high EPU periods through excessive credit extension and under-provision of loan reserves, propagating a cycle of risky credit extension, which enhances overall bank performance, however. Investors, board members, and regulators should therefore be mindful of the systemic implications of their policies.

We study whether the low interest rate environment paired with booming housing markets affected banks' foreign activities in terms of commercial and residential real estate backed lending. For a sample of systemically relevant banks in the euro area and the period 2015-2022, we find that banks expand their foreign real estate backed lending in the presence of higher lending spreads. The result is especially present given a lack of or misalignment in macroprudential policies across home and destination country. Furthermore, we assess whether banks disclose potential losses conditional on higher lending spreads and borrowing country exposure. We find only better capitalized banks to show higher forbearance ratios. During the Covid-19 pandemic, non-performing loans related to foreign loans backed by real estate go up for low capitalized banks with more exposure to countries having offered high rates.

This paper examines corporate political advocacy's motivations and financial consequences using the pause and subsequent resumption of corporate political donations following the US Capitol riots. Firms operating in a politically polarized environment were more likely to make these announcements, irrespective of firm-level political risks. The announcement returns are negative (positive) for firms exposed to high polarization and political risks (high polarization and low political risks). Store footfalls, sales, gross margins and profitability increase for both these groups. However, firms facing high polarization and political risks are more likely to resume PAC donations within a year of the Capitol riots.