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Geographic disparities in bank lending: Evidence from an auto loan market

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  • Liu, Tao
  • Yu, Yanxin
  • Gong, Di
  • Guo, Min

Abstract

We investigate geographic biases against nonlocal borrowers in the Chinese auto loan market. Using proprietary loan-level data from a major commercial bank in a regional market, we discover that nonlocal borrowers encounter geographic discrimination, manifested in higher loan rates and shorter loan durations compared to similar local counterparts, even after adjusting for borrowers' risk profiles. This bias is exacerbated by information asymmetries as well as economic and institutional stereotypes. The disparity is particularly pronounced in cases involving elevated loan-to-value (LTV) ratios, higher-value or luxury vehicles, and among male or older borrowers. Our findings shed light on the human biases in lending decisions in the credit market.

Suggested Citation

  • Liu, Tao & Yu, Yanxin & Gong, Di & Guo, Min, 2024. "Geographic disparities in bank lending: Evidence from an auto loan market," Pacific-Basin Finance Journal, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:pacfin:v:88:y:2024:i:c:s0927538x24003251
    DOI: 10.1016/j.pacfin.2024.102573
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    More about this item

    Keywords

    Geographic discrimination; Nonlocal borrowers; Auto loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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