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Cultural Proximity and Loan Outcomes

Raymond Fisman, Daniel Paravisini and Vikrant Vig

No 18096, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present evidence that shared codes, religious beliefs, ethnicity - cultural proximity - between lenders and borrowers improves the efficiency of credit allocation. We identify in-group preferential treatment using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers and borrowers. Cultural proximity increases lending on both intensive and extensive margins and improves repayment performance, even after the in-group officer is replaced by an out-group one. Further, cultural proximity increases loan dispersion and reduces loan to collateral ratios. Our results imply that cultural proximity mitigates informational problems that adversely affect lending, which in turn relaxes financial constraints and improves access to finance.

JEL-codes: D82 G21 J15 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-ban, nep-mfd and nep-ure
Note: CF LS
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

Published as Raymond Fisman & Daniel Paravisini & Vikrant Vig, 2017. "Cultural Proximity and Loan Outcomes," American Economic Review, American Economic Association, vol. 107(2), pages 457-492, February.

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Journal Article: Cultural Proximity and Loan Outcomes (2017) Downloads
Working Paper: Cultural proximity and loan outcomes (2017) Downloads
Working Paper: Cultural Proximity and Loan Outcomes (2012) Downloads
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