The Causal Impact of Distance on Bank Lending

55 Pages Posted: 1 Apr 2015 Last revised: 7 Oct 2018

See all articles by Christoph Herpfer

Christoph Herpfer

Emory University - Goizueta Business School

Aksel Mjøs

Norwegian School of Economics (NHH) - Department of Finance

Cornelius Schmidt

Norwegian School of Economics (NHH) - Department of Finance

Date Written: September 30, 2018

Abstract

We exploit exogenous shocks to the distance between corporate borrowers and banks from infrastructure improvements to analyze the causal impact of distance on lending. Reductions in travel time impact both new and existing borrowing relationships. Lower distance increases the likelihood of initiating a new banking relationship, consistent with closer distance creating an economic surplus from lower transaction costs. In existing lending relationships banks capture a fraction of this surplus by increasing interest rates, in particular if banks have higher market power. Larger infrastructure projects are associated with stronger declines in distance and larger treatment effects.

Keywords: bank credit, lending relationship, spatial price discrimination

JEL Classification: G21, L11, L14

Suggested Citation

Herpfer, Christoph and Mjøs, Aksel and Schmidt, Cornelius, The Causal Impact of Distance on Bank Lending (September 30, 2018). Asian Finance Association (AsianFA) 2018 Conference. Available at SSRN: https://ssrn.com/abstract=2587058 or http://dx.doi.org/10.2139/ssrn.2587058

Christoph Herpfer (Contact Author)

Emory University - Goizueta Business School ( email )

1300 Clifton Road
Atlanta, GA 30322-2722
United States

Aksel Mjøs

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

Cornelius Schmidt

Norwegian School of Economics (NHH) - Department of Finance ( email )

Helleveien 30
N-5045 Bergen
Norway

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