The Causal Impact of Distance on Bank Lending

58 Pages Posted: 1 Apr 2015 Last revised: 12 Jul 2018

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: November 13, 2017

Abstract

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

Herpfer, Christoph and Mjøs, Aksel and Schmidt, Cornelius, The Causal Impact of Distance on Bank Lending (November 13, 2017). 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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