Cultural Proximity and the Formation of Lending Relationships
Michele Cascarano and
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Giorgia Barboni: University of Warwick, Warwick Business School and CAGE
CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)
We use credit registry data from the population of loans granted to firms in a region hosting two different cultural groups to study the role of culture in the formation of lending relationships. We find a large predominance of lending relationships involving banks and firms of the same culture, particularly among small, young, and opaque firms. Loans to same-culture firms are larger, require less collateral, and default less often than loans to different-culture firms. Our results suggest that cultural proximity reduces information asymmetries by providing a source of soft information that complements the one stemming from close or lengthy relationships.
Keywords: Cultural proximity; Asymmetric information; Soft information; Lending relationships JEL Classification: G21, G30, Z1 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:514
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