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Distance, Lending Relationships, and Competition


Degryse, Hans; Ongena, Steven (2005). Distance, Lending Relationships, and Competition. Journal of Finance, 60(1):231-266.

Abstract

We study the effect on loan conditions of geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms comprising the entire loan portfolio of a large Belgian bank. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease with the distance between the firm and the lending bank and increase with the distance between the firm and competing banks. Transportation costs cause the spatial price discrimination we observe.

Abstract

We study the effect on loan conditions of geographical distance between firms, the lending bank, and all other banks in the vicinity. For our study, we employ detailed contract information from more than 15,000 bank loans to small firms comprising the entire loan portfolio of a large Belgian bank. We report the first comprehensive evidence on the occurrence of spatial price discrimination in bank lending. Loan rates decrease with the distance between the firm and the lending bank and increase with the distance between the firm and competing banks. Transportation costs cause the spatial price discrimination we observe.

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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Scopus Subject Areas:Social Sciences & Humanities > Accounting
Social Sciences & Humanities > Finance
Social Sciences & Humanities > Economics and Econometrics
Language:English
Date:February 2005
Deposited On:24 Nov 2020 15:13
Last Modified:25 Nov 2020 21:01
Publisher:Wiley-Blackwell Publishing, Inc.
ISSN:0022-1082
OA Status:Closed
Publisher DOI:https://doi.org/10.1111/j.1540-6261.2005.00729.x
Official URL:https://onlinelibrary.wiley.com/doi/full/10.1111/j.1540-6261.2005.00729.x
Other Identification Number:merlin-id:11788

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