TY  - JOUR
AU  - Fisman,Raymond
AU  - Paravisini,Daniel
AU  - Vig,Vikrant
TI  - Cultural Proximity and Loan Outcomes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 18096
PY  - 2012
Y2  - May 2012
UR  - http://www.nber.org/papers/w18096
L1  - http://www.nber.org/papers/w18096.pdf
N1  - Author contact info:
Raymond Fisman
School of Business
Columbia University
622 Uris Hall
3022 Broadway
New York, NY 10027
Tel: 212/854-9157
Fax: 212-316-9219
E-Mail: rf250@columbia.edu

Daniel Paravisini
Department of Finance
London School of Economics
Houghton Street
London WC2A 2AE
Tel: +44 (0)20 7107 5371
Fax: +44 (0)20 7849 4647
E-Mail: d.paravisini@lse.ac.uk

Vikrant Vig
London Business School
Regent's Park
London NW1 4S, UK
Tel: 44 0 20 7000 8274
Fax: 44 0 20 7000 8201
E-Mail: vvig@london.edu
AB  - We present evidence that shared codes, religious beliefs, ethnicity - cultural proximity - between lenders and borrowers improves the efficiency of credit allocation. We identify in-group preferential treatment using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers and borrowers. Cultural proximity increases lending on both intensive and extensive margins and improves repayment performance, even after the in-group officer is replaced by an out-group one. Further, cultural proximity increases loan dispersion and reduces loan to collateral ratios. Our results imply that cultural proximity mitigates informational problems that adversely affect lending, which in turn relaxes financial constraints and improves access to finance.
ER  -