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Information frictions inside a bank: Evidence from borrower switching between branches

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  • Gong, Di
  • Ongena, Steven
  • Qi, Shusen
  • Yu, Yanxin

Abstract

Banks are multidivisional organizations in which branches hold local knowledge about borrowers. Can this "soft" information be transmitted across units? Studying the population of corporate loans originated by a large commercial bank in China from 2010 to 2020, we find that when firms switch branches within bank, the switching loans carry a significantly lower spread than comparable nonswitching loans. After switching, the new branch further reduces the loan spreads initially, but ratchets it up afterwards, surprising evidence of intra-bank hold-up. By documenting how internal communication failures distort lending, we link relationship banking with delegation, coordination, and information transmission within organizations.

Suggested Citation

  • Gong, Di & Ongena, Steven & Qi, Shusen & Yu, Yanxin, 2025. "Information frictions inside a bank: Evidence from borrower switching between branches," BOFIT Discussion Papers 7/2025, Bank of Finland Institute for Emerging Economies (BOFIT).
    • Handle: RePEc:zbw:bofitp:330334
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    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
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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