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

Ono, Arito  ,  Saito, Yukiko  ,  Sakai, Koji  ,  Uesugi, Iichiro

2016-02 , Institute of Economic Research, Hitotsubashi University
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.
基盤研究(S) = Grants-in-Aid for Scientific Research (S)

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