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Does Distance Still Matter? The Information Revolution in Small Business Lending

  • Mitchell A. Petersen

    (Kellogg Graduate School of Management at Northwestern University,)

  • Raghuram G. Rajan

    (University of Chicago's Graduate School of Business)

The distance between small firms and their lenders is increasing, and they are communicating in more impersonal ways. After documenting these systematic changes, we demonstrate they do not arise from small firms locating differently, consolidation in the banking industry, or biases in the sample. Instead, improvements in lender productivity appear to explain our findings. We also find distant firms no longer have to be the highest quality credits, indicating they have greater access to credit. The evidence indicates there has been substantial development of the financial sector, even in areas such as small business lending. Copyright The American Finance Association 2002.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 6 (December)
Pages: 2533-2570

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Handle: RePEc:bla:jfinan:v:57:y:2002:i:6:p:2533-2570
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  1. Allen N. Berger & Anthony Saunders & Joseph M. Scalise & Gregory F. Udell, 1998. "The Effects of Bank Mergers and Acquisitions on Small Business Lending," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-007, New York University, Leonard N. Stern School of Business-.
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  7. Jeremy C. Stein, 2000. "Information Production and Capital Allocation: Decentralized vs. Hierarchical Firms," NBER Working Papers 7705, National Bureau of Economic Research, Inc.
  8. Fredric S. Mishkin & Philip E. Strahan, 1999. "What Will Technology Do to Financial Structure?," NBER Working Papers 6892, National Bureau of Economic Research, Inc.
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  10. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
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  12. Mark J. Garmaise & Tobias J. Moskowitz, 1999. "Confronting Information Asymmetries: Evidence from Real Estate Markets," CRSP working papers 507, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  13. Joshua D. Coval & Tobias J. Moskowitz, 1999. "Home Bias at Home: Local Equity Preference in Domestic Portfolios," Journal of Finance, American Finance Association, vol. 54(6), pages 2045-2073, December.
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