Distance lending & social connectedness

Ankitkumar Kariya and Chhavi Shekhawat

Journal of Financial Stability, 2024, vol. 72, issue C

Abstract: Using Facebook’s social network data for the US counties, we examine whether social connectedness reduces the informational disadvantage in lending to small businesses at a distance. We find that for a given distance, there is a pecking order of lending. Banks first lend to more socially connected counties, and later, banks expand credit to socially less connected areas. The probability of loan charge-off decreases in social connectedness and more so for the loans originated by small banks. In the cross-section, the positive effect of social connectedness on loan performance is higher for the loans originated by out of state banks. These findings suggest that loan officers get valuable information through their social networks.

Keywords: Banking; Small businesses; Social connectedness; Business cycle (search for similar items in EconPapers)
JEL-codes: G20 G21 G41 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:72:y:2024:i:c:s1572308924000342

DOI: 10.1016/j.jfs.2024.101249

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