The Causal Impact of Distance on Bank Lending
76 Pages Posted: 1 Apr 2015 Last revised: 8 Oct 2021
Date Written: July 29, 2019
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: Suggested Citation