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Do Banks Price Discriminate Spatially? Evidence from Small Business Lending in Local Credit Markets

  • Andrea Bellucci

    (Universit… di Urbino)

  • Alexander V. Borisov

    (Indiana University)

  • Alberto Zazzaro

    ()

    (Universit… Politecnica delle Marche, MoFiR)

In this paper we explore the effects of bank-borrower physical proximity on price and non-price aspects of small business lending in local credit markets. Along the price dimension, our analysis reveals that interest rates increase with bank-borrower distance and decrease with the distance between borrower and other competing banks. Along the quantity dimension, we observe that more distant borrowers are more likely to experience binding credit limits. We also show that the quantity effects of bank-borrower distance are concentrated among less transparent firms. Our findings are consistent with pricing based on marginal costs that reflect information-based factors, and are in contrast to the established paradigm, where banks adopt spatial discriminatory pricing rules when lending to small-sized enterprises.

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Paper provided by Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences in its series Mo.Fi.R. Working Papers with number 79.

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Length: 29
Date of creation: Feb 2013
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Handle: RePEc:anc:wmofir:79
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