The Causal Impact of Distance on Bank Lending
58 Pages Posted: 1 Apr 2015 Last revised: 12 Jul 2018
Date Written: November 13, 2017
We exploit exogenous shocks to the distance between corporate borrowers and banks to analyze the role of distance in commercial bank lending. We find that a reduction in travel time due to improved infrastructure increases the likelihood of initiating a new borrowing relationship, evidence that lower distance creates a surplus from lower transaction costs. In existing lending relationships, however, banks capture a fraction of this surplus by increasing interest rates. Larger changes in distance are associated with stronger effects and banks with higher market power capture a larger fraction of the surplus.
Keywords: bank credit, lending relationship, spatial price discrimination
JEL Classification: G21, L11, L14
Suggested Citation: Suggested Citation