Distance Constraints: The Limits of Foreign Lending in Poor Economies

Atif Mian

Journal of Finance, 2006, vol. 61, issue 3, 1465-1505

Abstract: How far does mobility of multinational banks solve problems of financial development? Using a panel of 80,000 loans over 7 years, I show that greater cultural and geographical distance between a foreign bank's headquarters and local branches leads it to further avoid lending to “informationally difficult” yet fundamentally sound firms requiring relational contracting. Greater distance also makes them less likely to bilaterally renegotiate, and less successful at recovering defaults. Differences in bank size, legal institutions, risk preferences, or unobserved borrower heterogeneity cannot explain these results. These distance constraints can be large enough to permanently exclude certain sectors of the economy from financing by foreign banks.

Date: 2006
References: Add references at CitEc
Citations: View citations in EconPapers (503)

Downloads: (external link)
https://doi.org/10.1111/j.1540-6261.2006.00878.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:61:y:2006:i:3:p:1465-1505

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().