We survey the extant literature on the effects of both a bank's organizational structure and the physical distance separating it from the borrower on lending decisions. The available evidence suggests that banks engage in spatial pricing, which can be rationalized by the existence of transportation costs and information asymmetries. Moreover, their ability to price-discriminate seems to be bounded by the reach of the lending technology of surrounding competitors. It is not entirely clear from an empirical viewpoint that small, decentralized banks have a comparative advantage in relationship lending. This advantage is motivated theoretically by the existence of agency and communication costs within a bank. However, differences in data and methodology may explain the inconclusive evidence.
|Title of host publication||The changing geography of banking and finance|
|Editors||Alberto Zazzaro, Michele Fratianni, Pietro Alessandrini|
|Number of pages||18|
|Publication status||Published - 1 Dec 2009|