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Cultural Proximity and Loan Outcomes

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  • Raymond Fisman
  • Daniel Paravisini
  • Vikrant Vig

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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18096.

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Date of creation: May 2012
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Handle: RePEc:nbr:nberwo:18096

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Cited by:
  1. Eliasson, Tove, 2014. "Immigrant entrepreneurship and the origin of bankers," Working Paper Series, IFAU - Institute for Evaluation of Labour Market and Education Policy 2014:19, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  2. Thorsten Beck & Patrick Behr & Andreas Madestam, 2011. "Sex and Credit: Is There a Gender Bias in Lending?," Working Papers 411, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  3. Brogaard, Jonathan & Engelberg, Joseph & Parsons, Christopher A., 2014. "Networks and productivity: Causal evidence from editor rotations," Journal of Financial Economics, Elsevier, vol. 111(1), pages 251-270.

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