The value of in-person banking: evidence from U.S. small businesses

Song Zhang, Liang Han, Konstantinos Kallias, Antonios Kallias

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We produce the first systematic study of the determinants and implications of in-person banking. Using survey data from the U.S., we show that firms which are informationally opaque or operate in rural areas are liable to contact their primary bank in-person. This tendency extends to older, less educated, and female business owners. We find that a relationship based on face-to-face communication, on average, lasts 17.88 months longer, spans a wider range of financial services, and is more likely to be exclusive. The associated loans mature 3.37 months later and bear interest rates which are 11 basis points lower. For good quality firms, in-person communication also relates to less discouraged borrowing. These results are robust to multiple approaches for endogeneity, including recursive bivariate probits, treatment effect models, and instrumental variables regressions. Overall, our findings offer empirical grounding to soft information theory and a note of caution to banks against suppressing channels of interpersonal communication.
Original languageEnglish
Pages (from-to)1393-1435
Number of pages43
JournalReview of Quantitative Finance and Accounting
Issue number4
Early online date27 Apr 2021
Publication statusPublished - 1 Nov 2021


  • small business
  • relationship banking
  • soft information
  • in-person communication


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