The Causal Impact of Distance on Bank Lending

76 Pages Posted: 1 Apr 2015 Last revised: 8 Oct 2021

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 investigate the role of physical distance in corporate lending by exploiting infrastructure improvements as shocks to travel time. Lower travel time 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 bargaining power. Reductions in travel time to competing banks have the opposite e↵ects. Banks benefit from improved infrastructure through an increase in clients, and lenders that rely more on technology do not exhibit sensitivity to changes in distance.

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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