Keywords: Commercial lending, spatial probit
Abstract: Innovations such as credit scoring have increased the ability of banks to lend to distant business
borrowers, which could expand the geographic market for small business loans. However,
if this effect is limited to a few large banks, the market may become segmented and lending
distance at local banks actually decreases. This paper, using a new data source and a spatial
econometric model, empirically estimates the relationship between distance and commercial
lending and how this relationship is evolving over time. We find distance is negatively associated
with the likelihood of a local commercial loan being made and that the deterrent effect of
distance is consistently more important, the smaller the size of the bank. We find no evidence
that distance is becoming less important in the United States in recent years. In fact, the bulk
of the evidence suggests that distance may be of increasing importance in local market lending.
Full paper (175 KB PDF)
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Last update: June 1, 2004