Theory and Policy Seminar, Series 212

National Academy of Development and Strategy (NADS), RUC

Theory and Policy Seminar, Series 212

Information Frictions, Credit Constraints, and Distant Borrowing

Reported by: LIU Zehao (School of Finance, Renmin University of China)

Moderator: LIU Ruiming (National Academy of Development and Strategy, Renmin University of China)

Time: May 29, 2025 (Thursday) 11:00-12:00

Venue: Room 1133, 11th Floor, Lide Building

Abstract:

We provide a novel explanation for the geographic dispersion of borrower-lender relationships based on information frictions rather than competition. Firms strategically select distant banks to increase lenders' information production costs, securing larger loans under information-insensitive contracts. Our model predicts that higher-quality firms prefer distant lenders while lower-quality firms match with local lenders offering information-sensitive contracts. Using transaction-level data from a major Chinese bank, we find strong empirical support: higher-rated firms exhibit greater propensity for distant borrowing; local loans show stronger price-quantity relationships; distant loan pricing demonstrates weaker sensitivity to defaults; and advancements in information technology reduce distant borrowing.