Does Geographical Proximity Matter in Small Business Lending? Evidence from Changes in Main Bank Relationships

Arito Ono, Yukiko Saito, Koji Sakai and Iichiro Uesugi

No 40, HIT-REFINED Working Paper Series from Institute of Economic Research, Hitotsubashi University

Abstract: Using a unique and massive firm-bank matched panel dataset, this paper examines the causal link between the geographical distance between a firm and its main bank and the probably that a firm will switch its main bank. Utilizing the exogenous change in firm-main bank distances brought about by bank mergers and bank branch consolidations in Japan during 2000–2010, the analysis – the first of its kind – finds the following. First, an increase in lending distance positively affected switching of firm-main bank relationships. Second, the average lending distance for firms that switched to new main banks significantly decreased afterwards. Third, the lending distance of new firm-main bank relationships after the switch did not have a significant impact on firms' probability of ex-post default, suggesting that larger lending distance does not necessarily result in a deterioration in the quality of soft information.

Keywords: lending distance; firm-bank relationships; bank mergers; main bank (search for similar items in EconPapers)
JEL-codes: G21 R12 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2016-02
New Economics Papers: this item is included in nep-ban, nep-cse, nep-ent, nep-geo and nep-sbm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:hit:remfce:40

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