Cultural proximity and loan outcomes

Fisman, Raymond, Paravisini, Daniel and Vig, Vikrant (2016) Cultural proximity and loan outcomes. American Economic Review . ISSN 0002-8282 (In Press)

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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:	Article
Official URL:	https://www.aeaweb.org/journals/aer
Additional Information:	© 2016 AEA
Library of Congress subject classification:	H Social Sciences > HG Finance
Sets:	Departments > Finance
Date Deposited:	08 Aug 2016 09:16
URL:	http://eprints.lse.ac.uk/67376/

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