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Cultural proximity and loan outcomes

Raymond Fisman, Daniel Paravisini and Vikrant Vig

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We present evidence that cultural proximity (shared codes, beliefs, ethnicity) between lenders and borrowers increases the quantity of credit and reduces default. We identify in-group lending using dyadic data on religion and caste for officers and borrowers from an Indian bank, and a rotation policy that induces exogenous matching between them. Having an in-group officer increases credit access and loan size dispersion, reduces collateral requirements, and induces better repayment even after the in-group officer leaves. We consider a range of explanations and suggest that the findings are most easily explained by cultural proximity serving to mitigate information frictions in lending.

JEL-codes: D82 D83 G21 G28 O16 Z12 Z13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-mfd and nep-ure
Date: 2017-02-01
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Published in American Economic Review, 1, February, 2017, 107(2), pp. 457-492. ISSN: 0002-8282

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http://eprints.lse.ac.uk/67376/ Open access version. (application/pdf)

Related works:
Journal Article: Cultural Proximity and Loan Outcomes (2017) Downloads
Working Paper: Cultural Proximity and Loan Outcomes (2012) Downloads
Working Paper: Cultural Proximity and Loan Outcomes (2012) Downloads
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