Communication Within Banking Organizations and Small Business Lending
38 Pages Posted: 17 May 2019 Last revised: 5 Jun 2019
Date Written: May 8, 2019
We investigate how communication within banks affects small business lending. Using travel time between a bank’s headquarters and its branches to proxy for the costs of communicating soft information, we exploit shocks to these travel times to evaluate the impact of within bank communication costs on small business loans. Consistent with Stein’s (2002) model of the transmission of soft information across a bank’s hierarchies, we find that reducing headquarters-branch travel time boosts small business lending in the branch’s county. Several extensions suggest that new airline routes facilitate the transmission of soft information, boosting small firm lending.
Keywords: Small Business Credit, Banking Organization, Communication, Soft Information
JEL Classification: G21, G30, D83, D20, D22
Suggested Citation: Suggested Citation