The Causal Impact of Distance on Bank Lending

Christoph Herpfer (), Aksel Mjøs () and Cornelius Schmidt ()
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Christoph Herpfer: Goizueta Business School, Emory University, Atlanta, Georgia 30322
Aksel Mjøs: Department of Finance, Norwegian School of Economics, 5045 Bergen, Norway
Cornelius Schmidt: Department of Finance, Norwegian School of Economics, 5045 Bergen, Norway; DG FISMA, European Commission, Brussels 1049, Belgium

Management Science, 2023, vol. 69, issue 2, 723-740

Abstract: We investigate the role of physical distance in corporate lending by exploiting infrastructure improvements as shocks to travel time. Lower travel time increases the likelihood of initiating a new banking relationship, consistent with an economic surplus from lower transaction costs. In existing lending relationships, banks capture part of this surplus by increasing interest rates, in particular, if banks have higher bargaining power. Reductions in travel time to competing banks have the opposite effects. Banks benefit from improved infrastructure through an increase in clients, and lenders that rely more on technology do not exhibit sensitivity to changes in distance.

Keywords: bank credit; lending relationship; spatial price discrimination; FinTech (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:69:y:2023:i:2:p:723-740

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