title: Influences of Regional Economics on Banking Relationships and Lending : Evidence from Germany
Creators: name: Zurek, Maximilian
Publisher: name: University of Bayreuth
Year: 2021
Subjects: subject: Kreditvergabe
subject: Hausbank
subject: Regionalökonomie
subject: Immobilienpreise
subject: 330

description: Research on the links between regional economics and banking comprises many problems that affect spatial patterns of economic activity in various ways. In economics, capital is frequently supposed to be completely mobile across different regions, hence geographical dimensions in finance have produced a rather small body of literature compared to other fields of research. This thesis analyzes several links of regional factors to banking, namely the impacts of regional industrial clustering and distance on bank relationships as well as the effects of local real estate price growth on banks' risk-taking. A common factor of these issues is the impact of distance on the transmission of information, which applies to knowledge transfers within industrially specialized firm clusters, potential information asymmetries between distant borrower and lenders, and the ability to produce reliable predictions for price changes on local markets. Therefore, the thesis offers an insight whether distance is still a constraint of the transport of all relevant information in the age of strong development of digital techniques and whether being in proximity to a market changes firms' funding or banks' lending. The first two chapters of this thesis introduce the topics and show how the different aspects that are analyzed in the following are connected to each other. Furthermore, I discuss some of the concepts that are relevant for the following analyses. Local industrial specialization plays a crucial role in chapter 3, where the effects of potential industry externalities and competition on firms' external funding are analyzed. A special focus is placed on innovative firms, which might on the one hand benefit from industry externalities, but on the other hand suffer under harsher competition and incur more problems when it comes to gaining access to external funding. The analysis finds that local competition robustly affects firms' number of bank relationships negatively, while local industry specialization only has robust effects if the analyzed firm sample is split up w.r.t. industrial sectors. Distance, which is highly relevant for the existence of industrial externalities, is a key component of chapter 4. Here, I analyze whether interest rates of loans increase with borrower lender distance due to information asymmetries or higher transport costs. Analyzing a cross-section of 8,200 German firms, I find that borrower-lender distance has a significant effect on the interest rates paid in single bank relationships. Besides using higher risk premia for loans, collateral is a frequent method of overcoming risk in lending that is caused by information asymmetries. The impacts of real estate – which is commonly used as collateral – on banks' loan portfolio risk is investigated in chapter 5. This chapter analyzes whether information on local real estate price growth, which captures a variety of economic conditions, can explain changes in banks' risk-taking in lending. If banks have good knowledge about local real estate market development, they should be able to recognize whether price increases are fundamentally driven and therefore adapt their risk-taking. Analyzing a panel data of 390 German savings banks, which have a strong affiliation with local economies as well as with local real estate markets, I find that changes in local real estate price levels do not alter their risk-taking. The key results of the thesis are summarized in chapter 6.