Going the Extra Mile: Distant Lending and Credit Cycles

67 Pages Posted: 10 Jun 2019

See all articles by Joao Granja

Joao Granja

University of Chicago - Booth School of Business

Christian Leuz

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Leibniz Institute SAFE; CESifo Research Network; Center for Financial Studies (CFS)

Raghuram G. Rajan

University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: May 23, 2019

Abstract

We examine the degree to which competition amongst lenders interacts with the cyclicality in lending standards using a simple measure, the average physical distance of borrowers from banks’ branches. We propose that this novel measure captures the extent to which lenders are willing to stretch their lending portfolio. Consistent with this idea, we find a significant cyclical component in the evolution of lending distances. Distances widen considerably when credit conditions are lax and shorten considerably when credit conditions become tighter. Next, we show that a sharp departure from the trend in distance between banks and borrowers is indicative of increased risk taking. Finally, we provide evidence that as competition in banks’ local markets increases, their willingness to make loans at greater distance increases. Since average lending distance is easily measurable, it is potentially a useful measure for bank supervisors.

Suggested Citation

Granja, Joao and Leuz, Christian and Rajan, Raghuram G., Going the Extra Mile: Distant Lending and Credit Cycles (May 23, 2019). CFS Working Paper, No. 623, 2019, Available at SSRN: https://ssrn.com/abstract=3393153 or http://dx.doi.org/10.2139/ssrn.3393153

Joao Granja

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Room 326
Chicago, IL 60637
United States

Christian Leuz (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-1996 (Phone)

HOME PAGE: http://faculty.chicagobooth.edu/christian.leuz/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI)

Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Leibniz Institute SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

CESifo Research Network

Poschinger Str. 5
Munich, DE-81679
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Raghuram G. Rajan

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
148
Abstract Views
1,859
Rank
38,785
PlumX Metrics