Distance and Loan Pricing Revisited: A Structural Estimation Approach

Mitsuru Katagiri and Naoki Wakamori
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Mitsuru Katagiri: Waseda University and TDB-CAREE. (E-mail: mitsuru.katagiri@waseda.jp)
Naoki Wakamori: Keio University and TDB-CAREE. (E-mail: nwakamo@keio.jp)

No 26-E-11, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: This paper examines how geographic distance between bank branches and firms affects firms' borrowing costs. Building on descriptive evidence that highlights the role of nearby competing banks in determining loan rates, we develop a model where firms choose their lenders and banks compete in loan rates, and we structurally estimate the model using matched firm- and bank-branch-level microdata from Japan. The estimates suggest that distance affects loan rates by increasing both banks' and borrowers' costs. Counterfactual simulations indicate that the impact of branch closures on small businesses' borrowing costs depends on local banking market conditions.

Keywords: Banking; Loan pricing; Spatial price discrimination (search for similar items in EconPapers)
JEL-codes: D43 G21 L13 L14 (search for similar items in EconPapers)
Date: 2026-08
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:26-e-11

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