Bank Lending, Geographical Distance, and Credit risk: An Empirical Assessment of the Church Tower Principle
AbstractDoes the Church Tower Principle, i.e. geographical proximity between borrowing firm and lending bank, matter in credit risk management? If so, the bank might expose itself to a greater risk by lending to distant firms and should therefore respond by rationing them harder. In this paper we incorporate the Church Tower Principle in a simple theoretical model and derive implications that are empirically testable. We use data on corporate loans granted 1994 to 2000 by a leading Swedish bank and find no evidence that the principle applies.
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Bibliographic InfoPaper provided by Sveriges Riksbank (Central Bank of Sweden) in its series Working Paper Series with number 144.
Length: 30 pages
Date of creation: 01 Dec 2002
Date of revision:
Publication status: Published in Journal of Economics and Business, 2005, pages 39-59.
Asymmetric information; credit rationing; duration model;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-01-12 (All new papers)
- NEP-CFN-2003-01-12 (Corporate Finance)
- NEP-ENT-2003-01-12 (Entrepreneurship)
- NEP-MFD-2003-01-12 (Microfinance)
- NEP-URE-2003-01-12 (Urban & Real Estate Economics)
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