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Cultural proximity and loan outcomes

Fisman, Raymond, Paravisini, Daniel and Vig, Vikrant (2017) Cultural proximity and loan outcomes. American Economic Review, 107 (2). pp. 457-492. ISSN 0002-8282

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Identification Number: 10.1257/aer.20120942

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: © 2017 AEA
Divisions: Finance
Subjects: H Social Sciences > HG Finance
H Social Sciences > HN Social history and conditions. Social problems. Social reform
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
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 08 Aug 2016 09:16
Last Modified: 20 Jul 2019 02:25
URI: http://eprints.lse.ac.uk/id/eprint/67376

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