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Social proximity and loan outcomes: evidence from an Indian bank

Fisman, Raymond, Paravisini, Daniel and Vig, Vikrant (2011) Social proximity and loan outcomes: evidence from an Indian bank. . (Unpublished)

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We present evidence that social proximity between lenders and borrowers improves loan outcomes. We identify in-group preferential treatment using dyadic data on the religion and caste of bank officers and borrowers from a bank in India, and a rotation policy that induces quasi-random matching between officers and borrowers. Social proximity increases the intensive and extensive margins of lending, and reduces the collateral rate. Ex post, social proximity increases repayment performance, even after the in-group officer is replaced by an out-group one. The results suggest that the information benefits of social proximity may outweigh the misallocation costs of taste-based discrimination.

Item Type: Monograph (Other)
Additional Information: © 2011 The authors
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: 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
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 16 Apr 2012 13:16

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