Does Distance Still Matter? The Information Revolution in Small Business Lending

  • Author(s): Mitchell A. Petersen, Raghuram G. Rajan
  • Published: Dec 17, 2002
  • Pages: 2533-2570
  • DOI: 10.1111/1540-6261.00505

The distance between small firms and their lenders is increasing, and they are communicating in more impersonal ways. After documenting these systematic changes, we demonstrate they do not arise from small firms locating differently, consolidation in the banking industry, or biases in the sample. Instead, improvements in lender productivity appear to explain our findings. We also find distant firms no longer have to be the highest quality credits, indicating they have greater access to credit. The evidence indicates there has been substantial development of the financial sector, even in areas such as small business lending.

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