Does Being Your Bank's Neighbor Matter?

47 Pages Posted: 22 Dec 2012 Last revised: 22 Jan 2013

See all articles by Anzhela Knyazeva

Anzhela Knyazeva

Independent; New York University (NYU) - Leonard N. Stern School of Business

Diana Knyazeva

Independent

Date Written: April 1, 2012

Abstract

This paper provides new evidence on the role of distance between banks and borrowers in bank lending. We argue that delegated monitors face higher costs of collecting information about nonlocal borrowers due to the difficulty of obtaining and verifying soft information over distances. Further, the higher information collection and monitoring costs associated with distance should be reflected in loan terms. Empirically, loan spreads are increasing in the distance between borrowers and lenders. Finally, banks are more likely to include covenant provisions or require collateral when lending to borrowers located far away.

Keywords: bank lending, spreads, covenants, geography, distance

JEL Classification: G21, G32

Suggested Citation

Knyazeva, Anzhela and Knyazeva, Diana, Does Being Your Bank's Neighbor Matter? (April 1, 2012). Journal of Banking and Finance, Vol. 36, No. 4, 2012. Available at SSRN: https://ssrn.com/abstract=2192594

Anzhela Knyazeva (Contact Author)

Independent ( email )

No Address Available

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Diana Knyazeva

Independent ( email )

No Address Available

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