Communication within Banking Organizations and Small Business Lending
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.
We thank Philip Bond, Andrew Ellul, Vyacheslav Fos, Ronald Masulis, Haoxiang Zhu, for valuable comments and suggestions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Ross Levine & Chen Lin & Qilin Peng & Wensi Xie, 2020. "Communication within Banking Organizations and Small Business Lending," The Review of Financial Studies, vol 33(12), pages 5750-5783.