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Cultural Proximity and the Formation of Lending Relationships

Author

Listed:
  • Accetturo, Antonio

    (Economic Research Unit, Trento, Bank of Italy)

  • Barboni, Giorgia

    (University of Warwick, Warwick Business School and CAGE)

  • Cascarano, Michele

    (Economic Research Unit, Trento, Bank of Italy)

  • Garcia-Appendini, Emilia

    (Department of Banking and Finance, University of Zurich)

Abstract

We use credit registry data from the population of loans granted to firms in a region hosting two different cultural groups to study the role of culture in the formation of lending relationships. We find a large predominance of lending relationships involving banks and firms of the same culture, particularly among small, young, and opaque firms. Loans to same-culture firms are larger, require less collateral, and default less often than loans to different-culture firms. Our results suggest that cultural proximity reduces information asymmetries by providing a source of soft information that complements the one stemming from close or lengthy relationships.

Suggested Citation

  • Accetturo, Antonio & Barboni, Giorgia & Cascarano, Michele & Garcia-Appendini, Emilia, 2020. "Cultural Proximity and the Formation of Lending Relationships," CAGE Online Working Paper Series 514, Competitive Advantage in the Global Economy (CAGE).
    • Handle: RePEc:cge:wacage:514
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    File URL: https://warwick.ac.uk/fac/soc/economics/research/centres/cage/manage/publications/wp514.2020.pdf
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    References listed on IDEAS

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    Keywords

    Cultural proximity; Asymmetric information; Soft information; Lending relationships JEL Classification: G21; G30; Z1;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • Z1 - Other Special Topics - - Cultural Economics

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