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Does being your bank’s neighbor matter?

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  • Knyazeva, Anzhela
  • Knyazeva, Diana

Abstract

This paper provides new evidence on the role of distance between banks and borrowers in bank lending. We argue that delegated monitors face higher costs of collecting information about nonlocal borrowers due to the difficulty of obtaining and verifying soft information over distances. Further, the higher information collection and monitoring costs associated with distance should be reflected in loan terms. Empirically, loan spreads are increasing in the distance between borrowers and lenders. Finally, banks are more likely to include covenant provisions or require collateral when lending to borrowers located far away.

Suggested Citation

  • Knyazeva, Anzhela & Knyazeva, Diana, 2012. "Does being your bank’s neighbor matter?," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1194-1209.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:4:p:1194-1209
    DOI: 10.1016/j.jbankfin.2011.11.011
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    References listed on IDEAS

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    Cited by:

    1. Maté-Sánchez-Val, Mariluz & López-Hernandez, Fernando & Mur-Lacambra, Jesús, 2017. "How do neighboring peer companies influence SMEs’ financial behavior?," Economic Modelling, Elsevier, vol. 63(C), pages 104-114.
    2. Robert Bird & John Knopf, 2015. "The Impact of Local Knowledge on Banking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 48(1), pages 1-20, August.
    3. Bellucci, Andrea & Borisov, Alexander & Giombini, Germana & Zazzaro, Alberto, 2015. "Collateral and Local Lending: Testing the Lender-Based Theory," HIT-REFINED Working Paper Series 21, Institute of Economic Research, Hitotsubashi University.
    4. Bellucci, Andrea & Borisov, Alexander & Zazzaro, Alberto, 2013. "Do banks price discriminate spatially? Evidence from small business lending in local credit markets," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4183-4197.
    5. Luca Papi & Emma Sarno & Alberto Zazzaro, 2017. "The geographical network of bank organizations: issues and evidence for Italy," Chapters,in: Handbook on the Geographies of Money and Finance, chapter 8, pages 156-196 Edward Elgar Publishing.
    6. Maté Sánchez De Val, Mariluz, 2015. "La incidencia del efecto de interacción espacial en el comportamiento financiero de las pymes/The Impact of the Spatial Interaction on the Financial Behavior of SMEs," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 33, pages 101-118, Enero.
    7. Ono, Arito & Miyakawa, Daisuke & Hosono, Kaoru & Uchida, Hirofumi & Uchino, Taisuke & Uesugi, Iichiro, 2014. "Transaction Partners and Firm Relocation Choice: Evidence from the Tohoku Earthquake," HIT-REFINED Working Paper Series 11, Institute of Economic Research, Hitotsubashi University.
    8. Cenni, Stefano & Monferrà, Stefano & Salotti, Valentina & Sangiorgi, Marco & Torluccio, Giuseppe, 2015. "Credit rationing and relationship lending. Does firm size matter?," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 249-265.
    9. Hollander, Stephan & Verriest, Arnt, 2016. "Bridging the gap: the design of bank loan contracts and distance," Journal of Financial Economics, Elsevier, vol. 119(2), pages 399-419.
    10. repec:kap:jrefec:v:55:y:2017:i:4:d:10.1007_s11146-016-9561-4 is not listed on IDEAS
    11. repec:onb:oenbfi:y:2018:i:q1-18:b:2 is not listed on IDEAS
    12. Vu, Tram & Do, Viet & Skully, Michael, 2015. "Local versus foreign banks: A home market advantage in loan syndications," International Review of Financial Analysis, Elsevier, vol. 37(C), pages 29-39.
    13. Kleimeier, Stefanie & Chaudhry, Sajid M., 2015. "Cultural differences and the structure of loan syndicates," Finance Research Letters, Elsevier, vol. 15(C), pages 115-124.

    More about this item

    Keywords

    Bank lending; Spreads; Covenants; Geography; Distance;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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