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Distance and Loan Pricing Revisited: A Structural Estimation Approach

Author

Listed:
  • Mitsuru Katagiri

    (Waseda University and TDB-CAREE. (E-mail: mitsuru.katagiri@waseda.jp))

  • Naoki Wakamori

    (Keio University and TDB-CAREE. (E-mail: nwakamo@keio.jp))

Abstract

This paper examines how geographic distance between bank branches and firms affects firms' borrowing costs. Building on descriptive evidence that highlights the role of nearby competing banks in determining loan rates, we develop a model where firms choose their lenders and banks compete in loan rates, and we structurally estimate the model using matched firm- and bank-branch-level microdata from Japan. The estimates suggest that distance affects loan rates by increasing both banks' and borrowers' costs. Counterfactual simulations indicate that the impact of branch closures on small businesses' borrowing costs depends on local banking market conditions.

Suggested Citation

  • Mitsuru Katagiri & Naoki Wakamori, 2026. "Distance and Loan Pricing Revisited: A Structural Estimation Approach," IMES Discussion Paper Series 26-E-11, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:26-e-11
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    File URL: https://www.imes.boj.or.jp/research/papers/english/26-E-11.pdf
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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection

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