NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Communication within Banking Organizations and Small Business Lending

Ross Levine, Chen Lin, Qilin Peng, Wensi Xie

NBER Working Paper No. 25872
Issued in May 2019, Revised in June 2019
NBER Program(s):Corporate Finance Program, Industrial Organization Program

We investigate how communication within banks affects small business lending. Using travel time between a bank’s headquarters and its branches to proxy for the costs of communicating soft information, we exploit shocks to these travel times to evaluate the impact of within bank communication costs on small business loans. Consistent with Stein’s (2002) model of the transmission of soft information across a bank’s hierarchies, we find that reducing headquarters-branch travel time boosts small business lending in the branch’s county. Several extensions suggest that new airline routes facilitate the transmission of soft information, boosting small firm lending.

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Document Object Identifier (DOI): 10.3386/w25872

 
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