Communication Within Banking Organizations and Small Business Lending

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. 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 in-person communications that boost small-firm lending.

Keywords: Small Business Credit, Banking Organization, Communication, Soft Information

JEL Classification: G21, G30, D83, D20, D22