Risk-taking of Bank CEOs and Corporate Innovation

Abstract

We find that banks with CEOs who postpone exercising deep in-the-money options are more likely to lend to firms that are smaller, riskier, and more engaged in corporate innovation. These borrowers also spend more on R&D than a matched sample after getting the loans. Subsequently, these borrowers have higher innovation outputs and achieve greater market valuations. Overall, our findings suggest that the bank CEOs who reveal a high risk-taking attitude by their option exercising behavior help facilitate technological progress via the syndicate loans.