Social Proximity, Information, and Incentives in Local Bank Lending

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

2 Scopus Citations
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Author(s)

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Detail(s)

Original languageEnglish
Pages (from-to)80–146
Journal / PublicationReview of Corporate Finance Studies
Volume13
Issue number1
Online published18 Jun 2021
Publication statusPublished - Feb 2024

Abstract

Exploring the role of social proximity in bank lending using a proprietary data set, we uncover evidence of a significant social proximity effect on private information acquisition. Local loan officers have better information to identify higher-quality borrowers through improved screening. This advantage is greater when firms have higher information asymmetry and lower ratings. Results suggest that sociocultural resources drive locals' informational advantages and improve their lending performance. Importantly, we find that the social proximity advantage interacts with loan officer incentives. Strong evidence suggests that loan officers can be incentivized to use their social proximity advantage to make better loans. © The Author(s) 2021. Published by Oxford University Press on behalf of The Society for Financial Studies.

Research Area(s)

  • CULTURAL PROXIMITY, PROPENSITY SCORE, CREDIT, DISTANCE, GEOGRAPHY, MATTER, PERFORMANCE, CONSTRAINTS, COMPETITION, TIES

Citation Format(s)

Social Proximity, Information, and Incentives in Local Bank Lending. / Wang, Junbo; Wang, Yun; Wu, Chunchi et al.
In: Review of Corporate Finance Studies, Vol. 13, No. 1, 02.2024, p. 80–146.

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review