TY - JOUR AU - Petersen,Mitchell A. AU - Rajan,Raghuram G. TI - Does Distance Still Matter? The Information Revolution in Small Business Lending JF - National Bureau of Economic Research Working Paper Series VL - No. 7685 PY - 2000 Y2 - May 2000 UR - http://www.nber.org/papers/w7685 L1 - http://www.nber.org/papers/w7685.pdf N1 - Author contact info: Mitchell A. Petersen Kellogg School of Management Northwestern University 2001 Sheridan Road Evanston, IL 60208 Tel: 847/467-1281 Fax: 847/491-5719 E-Mail: mpetersen@northwestern.edu Raghuram Rajan Booth School of Business University of Chicago 5807 South Woodlawn Avenue Chicago, IL 60637 Tel: 773/702-4437 Fax: 773/702-0458 E-Mail: raghuram.rajan@ChicagoBooth.edu AB - The distance between small firms and their lenders in the United States is increasing. Not only are firms choosing more distant lenders, they are also communicating with them in more impersonal ways. After documenting these systematic changes, we demonstrate that they do not stem from small firms locating differently, from simple consolidation in the banking industry, or from biases in the sample. Instead, they seem correlated with improvements in bank productivity. We conjecture that greater, and more timely, availability of borrower credit records, as well as the greater ease of processing these may explain the increased lending at a distance. Consistent with such an explanation, distant firms no longer have to be observably the highest quality credits, suggesting that a wider cross-section of firms can now obtain funding from a particular lender. These findings, we believe, are direct evidence that there has been substantial development of the financial sector in the United States, even in areas such as small business lending that have not been directly influenced by the growth in public markets. From a policy perspective, that small firms now obtain wider access to financing suggests the consolidation of banking services may not raise as strong anti-trust concerns as in the past. ER -