Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/319959 
Year of Publication: 
2013
Series/Report no.: 
CASMEF Working Paper Series No. WP 2013/03
Publisher: 
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract: 
In this paper we explore the effects of bank-borrower physical proximity on price and non-price aspects of small business lending in local credit markets. Along the price dimension, our analysis reveals that interest rates increase with bank-borrower distance and decrease with the distance between borrower and other competing banks. Along the quantity dimension, we observe that more distant borrowers are more likely to experience binding credit limits. We also show that the quantity effects of bank-borrower distance are concentrated among less transparent firms. Our findings are consistent with pricing based on marginal costs that reflect information-based factors, and are in contrast to the established paradigm, where banks adopt spatial discriminatory pricing rules when lending to small-sized enterprises.
Subjects: 
Distance
Bank lending
Pricing
Interest rate
Credit availability
JEL: 
G21
G32
L11
Document Type: 
Working Paper

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