Working Paper: NBER ID: w25872
Authors: Ross Levine; Chen Lin; Qilin Peng; Wensi Xie
Abstract: 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.
Keywords: small business lending; communication costs; soft information; banking organizations
JEL Codes: D83; G21; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| reduced travel time (R41) | flow of soft information (L86) |
| flow of soft information (L86) | small business lending (G21) |
| higher proportion of young firms (L26) | stronger effects on small business lending (G21) |
| more intangible assets (O34) | stronger effects on small business lending (G21) |
| competitive banking markets (G21) | stronger effects on small business lending (G21) |
| new airline routes (L93) | small business lending (G21) |
| reduced travel time (R41) | small business lending (G21) |