Communication Within Banking Organizations and Small Business Lending

38 Pages Posted: 17 May 2019 Last revised: 5 Jun 2019

See all articles by Ross Levine

Ross Levine

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Qilin Peng

The University of Hong Kong - Faculty of Business and Economics

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Multiple version iconThere are 2 versions of this paper

Date Written: May 8, 2019

Abstract

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

Levine, Ross Eric and Lin, Chen and Peng, Qilin and Xie, Wensi, Communication Within Banking Organizations and Small Business Lending (May 8, 2019). Available at SSRN: https://ssrn.com/abstract=3384958 or http://dx.doi.org/10.2139/ssrn.3384958

Ross Eric Levine (Contact Author)

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Qilin Peng

The University of Hong Kong - Faculty of Business and Economics

Hong Kong

Wensi Xie

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong

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