CFOs’ facial trustworthiness and bank loan contracts

Using a well-developed machine learning-based image processing algorithm, we investigate whether a bank considers the facial trustworthiness of the chief financial officer (CFO) of a borrower firm for loan contracts. Based on a large sample of public firms in the United States, our results show that banks tend to offer lower loan spreads and are less likely to use collateral for firms with more facially trustworthy CFOs. Further, the results hold when we control the chief executive officers' (CEOs') facial trustworthiness, implying that it is the CFOs who negotiate with the banks about loan contracts. The effect of CFOs' facial trustworthiness on bank loan contracts is more pronounced in small or young firms, and less pronounced for firms in financial distress. Our study adds to the literature on the determinants of bank loan costs and the influence of managers’ facial features on corporate finance and corporate governance.