What Do a Billion Observations Say About Distance and Relationship Lending?
54 Pages Posted: 17 Jul 2018 Last revised: 15 Jun 2019
Date Written: June 14, 2019
Using a large sample of the locations of bank branches and corporate borrowers in China, we measure lender-borrower geographic proximity and find a nontrivial amount of distant lending. Banks overcome great physical distance to borrowers by collecting soft information via interfirm network. We use novel data on monthly internal loan ratings for each loan to directly measure soft information by tracing whether banks downgrade ratings before delinquency. When distant borrowers are connected to banks’ local borrowers, banks can predict delinquency events more accurately. This effect is more pronounced for small and medium enterprises. Consequently, connected borrowers’ delinquency rates are lower.
Keywords: Big Data; Distance; Firm Network; Soft Information
JEL Classification: G21, G28, G32, L51
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