The Causal Impact of Distance on Bank Lending

57 Pages Posted: 1 Apr 2015 Last revised: 30 Jul 2019

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: July 29, 2019

Abstract

We exploit exogenous shocks to the distance between corporate borrowers and both relationship- and competing 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 an economic surplus from lower transaction costs. In existing lending relationships banks capture part of this surplus by increasing interest rates, in particular if banks have higher market power. Reductions in travel time to competing banks have the opposite effects for both relationship initiation and interest rates.

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 (July 29, 2019). 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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