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Search Frictions in Credit Markets

Author

Listed:
  • Clément Mazet-Sonilhac

    (Università Bocconi, ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

Abstract

Using data on over 3.5 million firm-bank relationships, I document new facts suggesting that search frictions are pervasive in the market for small business loans. Motivated by this evidence, I develop a theory of firm-bank matching where firms incur costs to search for banking partners. The model predicts that a reduction in search frictions increases (i) intercity credit flows and (ii) firm-bank distance. I confirm these predictions by estimating my model on French data, using the staggered roll-out of broadband internet as an instrument.Using the structurally estimated parameters, I find that internet access reduced the cost of debt for small businesses by 4.9%.

Suggested Citation

  • Clément Mazet-Sonilhac, 2024. "Search Frictions in Credit Markets," Working Papers hal-04888145, HAL.
    • Handle: RePEc:hal:wpaper:hal-04888145
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-04888145v1
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    File URL: https://sciencespo.hal.science/hal-04888145v1/document
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