Distance, Lending Relationships, and Competition

Hans Degryse and Steven Ongena

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: A recent string of theoretical papers highlights the importance of geographical distance in explaining pricing and availability of loans to small firms. Lenders located in the vicinity of small firms have significantly lower monitoring and transaction costs, and hence considerable market power if competing financiers are located relatively far. We directly study the effect on loan conditions of the geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms and control for relevant relationship, loan contract, bank branch, firm, and regional characteristics. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease in the distance between the firm and the lending bank and increase similarly in the distance between the firm and competing banks. Both effects are statistically significant and economically relevant, are robust to changes in model specifications and variable definitions, and are seemingly not driven by the modest changes over time in lending technology we infer.

Keywords: spatial price discrimination; bank credit; lending relationships (search for similar items in EconPapers)
JEL-codes: G21 L11 L14 (search for similar items in EconPapers)
Date: 2002-03-01
New Economics Papers: this item is included in nep-cfn, nep-com, nep-ent and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

Published in Journal of Finance, 2005, vol. 60, pages 231-266

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http://www.csef.it/WP/wp80.pdf (application/pdf)

Related works:
Journal Article: Distance, Lending Relationships, and Competition (2005)
Working Paper: Distance, Lending Relationships, and Competition (2003)
Working Paper: Distance, Lending Relationships, and Competition (2003)
Working Paper: Distance, Lending Relationships and Competition (2002)
Working Paper: Distance, Lending Relationships and Competition (2002)
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