Geographic disparities in bank lending: Evidence from an auto loan market

Tao Liu, Yanxin Yu, Di Gong and Min Guo

Pacific-Basin Finance Journal, 2024, vol. 88, issue C

Abstract: We investigate geographic biases against nonlocal borrowers in the Chinese auto loan market. Using proprietary loan-level data from a major commercial bank in a regional market, we discover that nonlocal borrowers encounter geographic discrimination, manifested in higher loan rates and shorter loan durations compared to similar local counterparts, even after adjusting for borrowers' risk profiles. This bias is exacerbated by information asymmetries as well as economic and institutional stereotypes. The disparity is particularly pronounced in cases involving elevated loan-to-value (LTV) ratios, higher-value or luxury vehicles, and among male or older borrowers. Our findings shed light on the human biases in lending decisions in the credit market.

Keywords: Geographic discrimination; Nonlocal borrowers; Auto loans (search for similar items in EconPapers)
JEL-codes: G21 O10 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24003251

DOI: 10.1016/j.pacfin.2024.102573

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