Do Banks Price Discriminate Spatially? Evidence from Small Business Lending in Local Credit Markets

28 Pages Posted: 7 Feb 2013

See all articles by Andrea Bellucci

Andrea Bellucci

European Union - European Commission

Alexander Borisov

University of Cincinnati - Department of Finance - Real Estate

Alberto Zazzaro

Polytechnic University of Marche - Faculty of Economics

Date Written: February 2, 2013

Abstract

In this paper we explore the effects of bank-borrower physical proximity on price and non-price aspects of small business lending in local credit markets. Along the price dimension, our analysis reveals that interest rates increase with bank-borrower distance and decrease with the distance between borrower and other competing banks. Along the quantity dimension, we observe that more distant borrowers are more likely to experience binding credit limits. We also show that the quantity effects of bank-borrower distance are concentrated among less transparent firms. Our findings are consistent with pricing based on marginal costs that reflect information-based factors, and are in contrast to the established paradigm, where banks adopt spatial discriminatory pricing rules when lending to small-sized enterprises.

Keywords: Distance, Bank lending, Pricing, Interest rate, Credit availability

JEL Classification: G21, G32, L11

Suggested Citation

Bellucci, Andrea and Borisov, Alexander and Zazzaro, Alberto, Do Banks Price Discriminate Spatially? Evidence from Small Business Lending in Local Credit Markets (February 2, 2013). Available at SSRN: https://ssrn.com/abstract=2213030 or http://dx.doi.org/10.2139/ssrn.2213030

Andrea Bellucci

European Union - European Commission ( email )

Belgium

Alexander Borisov

University of Cincinnati - Department of Finance - Real Estate ( email )

College of Business Administration
Cincinnati, OH 45221
United States

Alberto Zazzaro (Contact Author)

Polytechnic University of Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
173
Abstract Views
679
rank
207,511
PlumX Metrics