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The Causal Impact of Distance on Bank Lending

Author

Listed:
  • Christoph Herpfer

    (Goizueta Business School, Emory University, Atlanta, Georgia 30322)

  • Aksel Mjøs

    (Department of Finance, Norwegian School of Economics, 5045 Bergen, Norway)

  • Cornelius Schmidt

    (Department of Finance, Norwegian School of Economics, 5045 Bergen, Norway; DG FISMA, European Commission, Brussels 1049, Belgium)

Abstract
We investigate the role of physical distance in corporate lending by exploiting infrastructure improvements as shocks to travel time. Lower travel time increases the likelihood of initiating a new banking relationship, consistent with an economic surplus from lower transaction costs. In existing lending relationships, banks capture part of this surplus by increasing interest rates, in particular, if banks have higher bargaining power. Reductions in travel time to competing banks have the opposite effects. Banks benefit from improved infrastructure through an increase in clients, and lenders that rely more on technology do not exhibit sensitivity to changes in distance.

Suggested Citation

  • Christoph Herpfer & Aksel Mjøs & Cornelius Schmidt, 2023. "The Causal Impact of Distance on Bank Lending," Management Science, INFORMS, vol. 69(2), pages 723-740, February.
    • Handle: RePEc:inm:ormnsc:v:69:y:2023:i:2:p:723-740
    DOI: 10.1287/mnsc.2022.4346
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    References listed on IDEAS

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    Cited by:

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    2. Canta, Chiara & Nilsen, Øivind A. & Ulsaker, Simen A., 2023. "Competition and risk taking in local bank markets: Evidence from the business loans segment," Journal of Empirical Finance, Elsevier, vol. 73(C), pages 153-169.
    3. Thiago Christiano Silva & Carlos Eduardo de Almeida & Solange Maria Guerra & Benjamin Miranda Tabak, 2024. "COVID-19 and Credit Reallocation: evidence from bank branch lending in Brazil," Working Papers Series 601, Central Bank of Brazil, Research Department.
    4. Qiankun Gu & Jeong‐Bon Kim & Ke Liao & Yi Si, 2023. "Decentralising for local information? Evidence from state‐owned listed firms in China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(5), pages 5245-5276, December.

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