Cultural proximity and loan outcomes

Fisman, Raymond, Paravisini, Daniel ORCID: 0009-0006-8803-8442 and Vig, Vikrant (2017) Cultural proximity and loan outcomes. American Economic Review, 107 (2). 457 - 492. ISSN 0002-8282

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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:	© 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
Date Deposited:	08 Aug 2016 09:16
Last Modified:	14 Nov 2024 05:30
URI:	http://eprints.lse.ac.uk/id/eprint/67376

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