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The value of in-person banking: evidence from U.S. small businesses

Song Zhang (), Liang Han (), Konstantinos Kallias () and Antonios Kallias ()
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Song Zhang: University of St Andrews
Liang Han: University of Reading
Konstantinos Kallias: University of Portsmouth
Antonios Kallias: Cardiff University

Review of Quantitative Finance and Accounting, 2021, vol. 57, issue 4, No 9, 1393-1435

Abstract: Abstract We produce the first systematic study of the determinants and implications of in-person banking. Using survey data from the U.S., we show that firms which are informationally opaque or operate in rural areas are liable to contact their primary bank in-person. This tendency extends to older, less educated, and female business owners. We find that a relationship based on face-to-face communication, on average, lasts 17.88 months longer, spans a wider range of financial services, and is more likely to be exclusive. The associated loans mature 3.37 months later and bear interest rates which are 11 basis points lower. For good quality firms, in-person communication also relates to less discouraged borrowing. These results are robust to multiple approaches for endogeneity, including recursive bivariate probits, treatment effect models, and instrumental variables regressions. Overall, our findings offer empirical grounding to soft information theory and a note of caution to banks against suppressing channels of interpersonal communication.

Keywords: Small business; Relationship banking; Soft information; In-person communication (search for similar items in EconPapers)
JEL-codes: G20 G29 G30 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11156-021-00982-5

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