Cultural proximity and loan outcomes

Fisman, Raymond, Paravisini, Daniel and Vig, Vikrant (2016) Cultural proximity and loan outcomes. Financial Markets Group Discussion Papers (759). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

We present evidence that cultural proximity (shared codes, beliefs, ethnicity) between lenders and borrowers increases the quantity of credit and reduces default. We identify in-group lending using dyadic data on religion and caste for officers and borrowers from an Indian bank, and a rotation policy that induces exogenous matching between them. Having an in-group officer increases credit access and loan size dispersion, reduces collateral requirements, and induces better repayment even after the in-group officer leaves. We consider a range of explanations and suggest that the findings are most easily explained by cultural proximity serving to mitigate information frictions in lending.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 2016 The Authors
Divisions:	Finance
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance Z - Other Special Topics > Z1 - Cultural Economics; Economic Sociology; Economic Anthropology > Z12 - Religion Z - Other Special Topics > Z1 - Cultural Economics; Economic Sociology; Economic Anthropology > Z13 - Social Norms and Social Capital; Social Networks
Date Deposited:	02 Jun 2023 11:06
Last Modified:	16 Sep 2023 00:01
URI:	http://eprints.lse.ac.uk/id/eprint/118974

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