Hostname: page-component-848d4c4894-8kt4b Total loading time: 0 Render date: 2024-06-27T17:48:03.346Z Has data issue: false hasContentIssue false
  • English
  • Français

Hometown Lending

Published online by Cambridge University Press:  18 September 2020

Ivan Lim  and
Duc Duy Nguyen Open the ORCID record for Duc Duy Nguyen [Opens in a new window]
Ivan Lim
Affiliation:
Durham University Business Schoolivan.lim@durham.ac.uk
Duc Duy Nguyen*
Affiliation:
King’s College London King’s Business School
*
duc_duy.nguyen@kcl.ac.uk (corresponding author)
Get access Rights & Permissions [Opens in a new window]

Abstract

Banks open more branches and make more lending near their CEOs’ childhood hometowns. The effects are stronger among informationally opaque borrowers and among CEOs who spend more time in their childhood hometowns. Furthermore, loans originated near CEOs’ hometowns contain more soft information and have lower ex post default rates, implying that hometown loans are more informed. Hometown lending does not affect aggregate bank outcomes, suggesting that credit is being reallocated from regions located farther away to regions proximate to bank CEOs’ hometowns.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 56 , Issue 8 , December 2021 , pp. 2894 - 2933
Copyright
© The Author(s), 2020. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

We are grateful to Paul Malatesta (the editor) and Yiming Qian (the referee) for very helpful comments and suggestions. We also thank Seth Armitage, Thorsten Beck, John Beshears, Zhong Chen, Kai Choy, Colin Clubb, Cláudia Custódio, Jo Danbolt, Bob DeYoung, Tarik Driouchi, Angela Gallo, Niklas Gawehn, Angelica Gonzalez, Paul Guest, Jens Hagendorff, Niels Hermes (discussant), Tom Hough, Elizabeth Kiser (discussant), Zicheng Lei, Tobias Meyll (discussant), Tony Moore, Maurizio Murgia, Linh Nguyen, Trang Nguyen, Dimitris Petmezas, Ben Sila, Raymond So, Wei Song, Simone Varotto, John Wilson, Bin Xu, Chao Yin, Yeqin Zeng, and participants at the 2019 FMA conference, 2018 Community Banking Conference, 2018 Social Finance and Financial Technology conference, 2018 EFMA conference, and seminar participants at the Free University of Bozen-Bolzano, King’s College London, and the Universities of East Anglia, Reading, Surrey, and Swansea for various helpful comments. The usual disclaimer applies.

References

Agarwal, S.; Amromin, G.; Ben-David, I.; Chomsisengphet, S.; and Evanoff, D. D.. “Predatory Lending and the Subprime Crisis.” Journal of Financial Economics, 113 (2014), 29–52.10.1016/j.jfineco.2014.02.008CrossRefGoogle Scholar
Agarwal, S., and Hauswald, R.. “Distance and Private Information in Lending.” Review of Financial Studies, 23 (2010), 2757–2788.10.1093/rfs/hhq001CrossRefGoogle Scholar
Bae, K.-H.; Stulz, R. M.; and Tan, H.. “Do Local Analysts Know More? A Cross-Country Study of the Performance of Local Analysts and Foreign Analysts.” Journal of Financial Economics, 88 (2008), 581–606.10.1016/j.jfineco.2007.02.004CrossRefGoogle Scholar
Bernile, G.; Bhagwat, V.; and Rau, R.. “What Doesn’t Kill You Will Only Make You More Risk-Loving: Early-Life Disasters and CEO Behavior.” Journal of Finance, 72 (2017), 167–206.10.1111/jofi.12432CrossRefGoogle Scholar
Cain, M. D., and McKeon, S. B.. “CEO Personal Risk-Taking and Corporate Policies.” Journal of Financial and Quantitative Analysis, 51 (2016), 139–164.10.1017/S0022109016000041CrossRefGoogle Scholar
Celerier, C., and Matray, A.. “Bank-Branch Supply, Financial Inclusion and Wealth Accumulation.” Review of Financial Studies, 32 (2019), 4767–4809.10.1093/rfs/hhz046CrossRefGoogle Scholar
Chen, D. L.; Moskowitz, T. J.; and Shue, K.. “Decision Making Under the Gambler’s Fallacy: Evidence from Asylum Judges, Loan Officers, and Baseball Umpires.” Quarterly Journal of Economics, 131 (2016), 1181–1242.10.1093/qje/qjw017CrossRefGoogle Scholar
Cohen-Cole, E. “Credit Card Redlining.” Review of Economic and Statistics, 93 (2011), 700–713.10.1162/REST_a_00052CrossRefGoogle Scholar
Coles, J.; Daniel, N. D.; and Naveen, L.. “Co-Opted Boards.” Review of Financial Studies, 27 (2014), 1751–1796.10.1093/rfs/hhu011CrossRefGoogle Scholar
Cornaggia, J.; Cornaggia, K. J.; and Israelsen, R.. “Where the Heart Is: Information Production and the Home Bias.” Management Science, 66 (2020), 5485–6064.10.1287/mnsc.2019.3438CrossRefGoogle Scholar
Cortés, K.; Duchin, R.; and Sosyura, D.. “Clouded Judgment: The Role of Sentiment in Credit Origination.” Journal of Financial Economics, 121 (2016), 392–413.10.1016/j.jfineco.2016.05.001CrossRefGoogle Scholar
Cortés, K., and Strahan, P. E.. “Tracing Out Capital Flows: How Financially Integrated Banks Respond to Natural Disasters.” Journal of Financial Economics, 125 (2017), 182–199.10.1016/j.jfineco.2017.04.011CrossRefGoogle Scholar
Coval, J. D., and Moskowitz, T. J.. “Home Bias at Home: Local Equity Preference in Domestic Portfolios.” Journal of Finance, 54 (1999), 2045–2073.10.1111/0022-1082.00181CrossRefGoogle Scholar
Cronqvist, H., and Yu, F.. “Shaped by Their Daughters: Executives, Female Socialization, and Corporate Social Responsibility.” Journal of Financial Economics, 126 (2017), 543–562.10.1016/j.jfineco.2017.09.003CrossRefGoogle Scholar
Cross, R. L., and Parker, A.. The Hidden Power of Social Networks: Understanding How Work Really Gets Done in Organizations. Cambridge, MA: Harvard Business Press (2004).Google Scholar
Custódio, C., and Metzger, D.. “Financial Expert CEOs: CEO’s Work Experience and Firm’s Financial Policies.” Journal of Financial Economics, 114 (2014), 125–154.10.1016/j.jfineco.2014.06.002CrossRefGoogle Scholar
Dittmar, A., and Duchin, R.. “Looking in the Rearview Mirror: The Effect of Managers’ Professional Experience on Corporate Financial Policy.” Review of Financial Studies, 29 (2016), 565–602.Google Scholar
Duarte, J.; Siegel, S.; and Young, L.. “Trust and Credit: The Role of Appearance in Peer-to-Peer Lending.” Review of Financial Studies, 25 (2012), 2455–2484.10.1093/rfs/hhs071CrossRefGoogle Scholar
Duchin, R., and Sosyura, D.. “Divisional Managers and Internal Capital Markets.” Journal of Finance, 68 (2013), 387–429.10.1111/jofi.12003CrossRefGoogle Scholar
Ergungor, O. E. “Bank Branch Presence and Access to Credit in Low- to Moderate-Income Neighborhoods.” Journal of Money, Credit, and Banking, 42 (2010), 1321–1349.10.1111/j.1538-4616.2010.00343.xCrossRefGoogle Scholar
Gilje, E. P.; Loutskina, E.; and Strahan, P. E.. “Exporting Liquidity: Branch Banking and Financial Integration.” Journal of Finance, 71 (2016), 1159–1184.10.1111/jofi.12387CrossRefGoogle Scholar
Gompers, P. A.; Ishii, J. L.; and Metrick, A.. “Corporate Governance and Equity Prices.” Quarterly Journal of Economics, 118 (2003), 107–155.10.1162/00335530360535162CrossRefGoogle Scholar
Graham, J.; Harvey, C.; Grennan, J.; and Rajgopal, S.. “Corporate Culture: Evidence from the Field.” SSRN Working Paper (2019).Google Scholar
Heckman, J. J. “Sample Selection as a Specification Error.” Econometrica, 47 (1979), 153–161.10.2307/1912352CrossRefGoogle Scholar
Hutton, I.; Jiang, D.; and Kumar, A.. “Corporate Policies of Republican Managers.” Journal of Financial and Quantitative Analysis, 49 (2014), 1279–1310.10.1017/S0022109014000702CrossRefGoogle Scholar
Ivković, Z., and Weisbenner, S.. “Local Does as Local Is: Information Content of the Geography of Individual Investors’ Common Stock Investments.” Journal of Finance, 60 (2005), 267–306.10.1111/j.1540-6261.2005.00730.xCrossRefGoogle Scholar
Jensen, M. C., and Meckling, W. H.. “Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure.” Journal of Financial Economics, 3 (1976), 305–360.10.1016/0304-405X(76)90026-XCrossRefGoogle Scholar
Jiang, F.; Qian, Y.; and Yonker, S. E.. “Hometown Biased Acquisitions.” Journal of Financial and Quantitative Analysis, 54 (2019), 2017–2051.10.1017/S002210901800131XCrossRefGoogle Scholar
Kruger, P. “Corporate Goodness and Shareholder Wealth.” Journal of Financial Economics, 115 (2015), 304–329.10.1016/j.jfineco.2014.09.008CrossRefGoogle Scholar
Liberti, J. M., and Petersen, M. A.. “Information: Hard and Soft.” Review of Corporate Finance Studies, 8 (2019), 1–41.CrossRefGoogle Scholar
Malloy, C. J. “The Geography of Equity Analysis.” Journal of Finance, 60 (2005), 719–755.CrossRefGoogle Scholar
Manzo, L. C., and Perkins, D. D.. “Finding Common Ground: The Importance of Place Attachment to Community Participation and Planning.” Journal of Planning Literature, 20 (2006), 335–350.10.1177/0885412205286160CrossRefGoogle Scholar
Masulis, R., and Reza, S. W.. “Agency Problems of Corporate Philanthropy.” Review of Financial Studies, 28 (2015), 592–636.10.1093/rfs/hhu082CrossRefGoogle Scholar
Nguyen, D. D.; Hagendorff, J.; and Eshraghi, A.. “Does a CEO’s Cultural Heritage Affect Performance Under Competitive Pressure?” Review of Financial Studies, 31 (2018), 97–141.10.1093/rfs/hhx046CrossRefGoogle Scholar
Nguyen, H. L. Q. “Are Credit Markets Still Local? Evidence from Bank Branch Closings.” American Economic Journal: Applied Economics, 11 (2019), 1–32.Google Scholar
Oster, E. “Unobservable Selection and Coefficient Stability: Theory and Evidence.” Journal of Business and Economic Statistics, 37 (2019), 187–204.CrossRefGoogle Scholar
Petersen, M. A., and Rajan, R. G.. “Does Distance Still Matter? The Information Revolution in Small Business Lending.” Journal of Finance, 57 (2002), 2533–2570.CrossRefGoogle Scholar
Pool, V. K.; Stoffman, N.; and Yonker, S. E.. “No Place Like Home: Familiarity in Mutual Fund Manager Portfolio Choice.” Review of Financial Studies, 25 (2012), 2563–2599.CrossRefGoogle Scholar
Proshansky, H. M. “The City and Self-Identity.” Environment and Behavior, 10 (1978), 147–169.10.1177/0013916578102002CrossRefGoogle Scholar
Rajan, U.; Seru, A.; and Vig, V.. “The Failure of Models that Predict Failure: Distance, Incentives, and Defaults.” Journal of Financial Economics, 115 (2015), 237–260.10.1016/j.jfineco.2014.09.012CrossRefGoogle Scholar
Rice, T., and Strahan, P. E.. “Does Credit Competition Affect Small-Firm Finance?” Journal of Finance, 65 (2010), 861–889.10.1111/j.1540-6261.2010.01555.xCrossRefGoogle Scholar
Schoar, A., and Zuo, L.. “Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Styles.” Review of Financial Studies, 30 (2017), 1425–1456.10.1093/rfs/hhw111CrossRefGoogle Scholar
Shleifer, A., and Vishny, R. W.. “A Survey of Corporate Governance.” Journal of Finance, 52 (1997), 737–783.10.1111/j.1540-6261.1997.tb04820.xCrossRefGoogle Scholar
Skrastins, J., and Vig, V.. “How Organizational Hierarchy Affects Information Production.” Review of Financial Studies, 32 (2019), 564–604.10.1093/rfs/hhy071CrossRefGoogle Scholar
Stein, J. C. “Information Production and Capital Allocation: Decentralized versus Hierarchical Firms.” Journal of Finance, 57 (2002), 1891–1921.10.1111/0022-1082.00483CrossRefGoogle Scholar
Sunder, J.; Sunder, S. V.; and Zhang, J.. “Pilot CEOs and Corporate Innovation.” Journal of Financial Economics, 126 (2017), 543–562.Google Scholar
Vaske, J. J., and Kobrin, K. C.. “Place Attachment and Environmentally Responsible Behavior.” Journal of Environmental Education, 32 (2001), 16–21.CrossRefGoogle Scholar
Weisbach, M. B. “Outside Directors and CEO Turnover.” Journal of Financial Economics, 20 (1988), 431–460.10.1016/0304-405X(88)90053-0CrossRefGoogle Scholar
Yonker, S. E. “Do Managers Give Hometown Labor an Edge?” Review of Financial Studies, 30 (2017a), 3581–3604.10.1093/rfs/hhx030CrossRefGoogle Scholar
Yonker, S. E. “Geography and the Market for CEOs.” Management Science, 63 (2017b), 609–630.CrossRefGoogle Scholar