Asymmetric information and distance: an empirical assessment of geographical credit rationing

Does the geographical proximity between the borrowing firm and the lending bank, matter in credit risk management? If so, the bank might expose itself to a greater risk by lending to distant firms and should therefore respond by rationing them harder. In this paper, we incorporate geographical credit rationing in a simple theoretical model, and derive implications, which are empirically testable. We use data on corporate loans granted between the years of 1994 and 2000 by a leading Swedish bank, and find no evidence of geographical credit rationing. (C) 2004 Elsevier Inc. All rights reserved.