Faculty of Business and Economics
The University of Hong Kong
Institutional Affiliation: The University of Hong Kong
NBER Working Papers and Publications
|May 2019||Communication within Banking Organizations and Small Business Lending|
with Ross Levine, Chen Lin, Wensi Xie: w25872
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.