Distance, Bank Organizational Structure, and Credit
TILEC Discussion Paper No. 2007-018
31 Pages Posted: 11 Jun 2007
Date Written: June 2007
We survey the extant literature on the effects of both a bank's organizational structure and the physical distance separating it from the lender on lending decisions. Banks do engage in spatial pricing, where the underlying mechanism can be both transportation costs and information asymmetries. Moreover, their ability to discriminate is bounded by the reach of the lending technology of surrounding competitors. It is not entirely clear from an empirical viewpoint that small, decentralized banks have a comparative advantage in relationship lending. Differences in data and methodology may explain these mixed findings. If it does exist, this advantage can be motivated theoretically by the existence of agency and communication costs within a bank.
Keywords: financial intermediation, distance, organizations, loan rates, collateral
JEL Classification: G21, L11, L22
Suggested Citation: Suggested Citation