Abstract
Using daily fluctuations in local sunshine as an instrument for sentiment, we study its effect on day-to-day decisions of lower-level financial officers. Positive sentiment is associated with higher credit approvals, and negative sentiment has the opposite effect of a larger magnitude. These effects are stronger when financial decisions require more discretion, when reviews are less automated, and when capital constraints are less binding. The variation in approval rates affects ex post financial performance and produces significant real effects. Our analysis of the economic channels suggests that sentiment influences managers’ risk tolerance and subjective judgment.
Original language | English (US) |
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Pages (from-to) | 392-413 |
Number of pages | 22 |
Journal | Journal of Financial Economics |
Volume | 121 |
Issue number | 2 |
DOIs | |
State | Published - Aug 1 2016 |
Externally published | Yes |
Keywords
- Behavioral finance
- Managerial biases
- Mood
- Sentiment
- Weather
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics
- Strategy and Management