Seminar
Cultural Proximity and Loan Outcomes
Vikrant Vig (London Business School)
Fédération des Banques Françaises Seminar
TSE, October 22, 2012, 12:30–14:00, room MF 323
Reference
Vikrant Vig (London Business School), “Cultural Proximity and Loan Outcomes”, Fédération des Banques Françaises Seminar, TSE, October 22, 2012, 12:30–14:00, room MF 323.
Abstract
We present evidence that shared codes, beliefs, ethnicity --cultural proximity-- be- tween lenders and borrowers improves the efficiency of credit allocation. We identify in-group preferential treatment using dyadic data on the religion and caste of officers and borrowers from a bank in India, and a rotation policy that induces exogenous matching between officers and borrowers. Having an in-group officer increases access to credit and loan size dispersion, reduces collateral requirements, and induces better repayment even after the in-group officer leaves. These effects diminish with group heterogeneity and size. The results imply that cultural proximity mitigates informational frictions in lending.
Research partnership
Fédération des Banques Françaises Research Initiative (sustainable)