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Distance lending & social connectedness

Author

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  • Kariya, Ankitkumar
  • Shekhawat, Chhavi

Abstract

Using Facebook’s social network data for the US counties, we examine whether social connectedness reduces the informational disadvantage in lending to small businesses at a distance. We find that for a given distance, there is a pecking order of lending. Banks first lend to more socially connected counties, and later, banks expand credit to socially less connected areas. The probability of loan charge-off decreases in social connectedness and more so for the loans originated by small banks. In the cross-section, the positive effect of social connectedness on loan performance is higher for the loans originated by out of state banks. These findings suggest that loan officers get valuable information through their social networks.

Suggested Citation

  • Kariya, Ankitkumar & Shekhawat, Chhavi, 2024. "Distance lending & social connectedness," Journal of Financial Stability, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:finsta:v:72:y:2024:i:c:s1572308924000342
    DOI: 10.1016/j.jfs.2024.101249
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    More about this item

    Keywords

    Banking; Small businesses; Social connectedness; Business cycle;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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