Scandinavian Working Papers in Economics

Working Paper Series,
Sveriges Riksbank (Central Bank of Sweden)

No 144: Bank Lending, Geographical Distance, and Credit risk: An Empirical Assessment of the Church Tower Principle

Kenneth Carling () and Sofia Lundberg ()
Additional contact information
Kenneth Carling: Department of Economics, Postal: Dalarna University, SE-781 88 Borlänge, Sweden
Sofia Lundberg: Center for Regional Science, Postal: Umeå University, SE-901 87 Umeå, Sweden

Abstract: Does the Church Tower Principle, i.e. geographical proximity between borrowing firm and lending bank, matter in credit risk management? If so, the bank might expose itself to a greater risk by lending to distant firms and should therefore respond by rationing them harder. In this paper we incorporate the Church Tower Principle in a simple theoretical model and derive implications that are empirically testable. We use data on corporate loans granted 1994 to 2000 by a leading Swedish bank and find no evidence that the principle applies.

Keywords: Asymmetric information; credit rationing; duration model

JEL-codes: D82; G21

30 pages, December 1, 2002

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Published as
Kenneth Carling and Sofia Lundberg, (2005), 'Asymmetric information and distance: an empirical assessment of geographical credit rationing', Journal of Economics and Business, vol 57, no 1, pages 39-59

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