Hostname: page-component-78c5997874-v9fdk Total loading time: 0 Render date: 2024-11-15T20:42:52.444Z Has data issue: false hasContentIssue false
  • English
  • Français

The Digital Credit Divide: Marketplace Lending and Entrepreneurship

Published online by Cambridge University Press:  01 September 2022

Douglas Cumming Open the ORCID record for Douglas Cumming [Opens in a new window] ,
Hisham Farag ,
Sofia Johan  and
Danny McGowan
Douglas Cumming*
Affiliation:
College of Business, Florida Atlantic University and University of Birmingham
Hisham Farag
Affiliation:
Birmingham Business School, University of Birminghamh.farag@bham.ac.uk
Sofia Johan
Affiliation:
Business School, Florida Atlantic University and University of Aberdeensjohan@fau.edu
Danny McGowan
Affiliation:
Birmingham Business School, University of Birminghamd.mcgowan@bham.ac.uk
*
cummingd@fau.edu (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

Core share and HTML view are not available for this content. However, as you have access to this content, a full PDF is available via the ‘Save PDF’ action button.

We conjecture that marketplace lending provokes an increase in the quantity of entrepreneurship, particularly in more regionally disadvantaged areas, albeit at lower average quality. Using a fuzzy regression discontinuity design that exploits exogenous variation in borrowers’ access to marketplace loans along U.S. state borders, we estimate a 10% increase in marketplace lending causes a 0.44% increase in business establishments per capita. The effects are more pronounced for less experienced entrepreneurs, for small and less profitable firms, firms more dependent upon external finance, in industries with lower sunk costs of entry, and for low-income regions with inferior access to financial institutions.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 7 , November 2022 , pp. 2659 - 2692
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful for helpful comments and suggestions provided by an anonymous referee, Paul Malatesta (the editor), seminar participants at Groningen University, the University of Birmingham, the University of Exeter, the University of Kent, the University of Nottingham, and conference participants at AOM 2019 and the 2019 European Finance Association annual meeting.

References

Acs, Z. J., and Audretsch, D.. “Innovation, Market Structure, and Firm Size.” Review of Economics and Statistics, 69 (1987), 567–574.CrossRefGoogle Scholar
Allen, F.; Gu, Z.; and Jagtiani, J.. “A Survey of Fintech Research and Policy Discussion.” Review of Corporate Finance, 1 (2021), 259–339.CrossRefGoogle Scholar
Amore, M.; Schneider, C.; and Zaldokas, A.. “Credit Supply and Corporate Innovation.” Journal of Financial Economics, 109 (2013), 835–855.CrossRefGoogle Scholar
Angrist, J., and Krueger, A. B.. “Does Compulsory School Attendance Affect Schooling and Earnings?” Quarterly Journal of Economics, 106 (1991), 979–1014.CrossRefGoogle Scholar
Asplund, M., and Nocke, V.. “Firm Turnover in Imperfectly Competitive Markets.” Review of Economic Studies, 73 (2006), 295–327.CrossRefGoogle Scholar
Bertrand, M.; Schoar, A.; and Thesmar, D.. “Banking Deregulation and Industry Structure: Evidence from the French Banking Reforms of 1985.” Journal of Finance, 62 (2007), 597–628.CrossRefGoogle Scholar
Black, S., and Strahan, P.. “Entrepreneurship and Bank Credit Availability.” Journal of Finance, 57 (2002), 2807–2833.CrossRefGoogle Scholar
Block, J. H.; Kohn, K.; Miller, D.; and Ullrich, K.. “Necessity Entrepreneurship and Competitive Strategy.” Small Business Economics, 44 (2015), 37–54.CrossRefGoogle Scholar
Bubna, A.; Das, S. R.; and Prabhala, N.. “Venture Capital Communities.” Journal of Financial and Quantitative Analysis, 55 (2019), 621–651.Google Scholar
Buchak, G.; Matvos, G.; Piskorski, T.; and Seru, A.. “Fintech, Regulatory Arbitrage, and the Rise of Shadow Banks.” Journal of Financial Economics, 130 (2018), 453–483.CrossRefGoogle Scholar
Cagetti, M., and De Nardi, M.. “Estate Taxation, Entrepreneurship, and Wealth.” American Economic Review, 99 (2009), 85–111.CrossRefGoogle Scholar
Caglayan, M.; Pham, T.; Talavera, O.; and Xiong, X.. “Asset Mispricing in Peer-to-Peer Loan Secondary Markets.” Journal of Corporate Finance, 65 (2020), 101769.Google Scholar
Cambridge Centre for Alternative Finance. “The Americas Alternative Finance Industry Report: Hitting Stride.” Mimeo (2017).Google Scholar
Cetorelli, N., and Strahan, P.. “Finance as a Barrier to Entry: Bank Competition and Industry Structure in the Local U.S. Markets.” Journal of Finance, 61 (2006), 437–461.CrossRefGoogle Scholar
Chen, X.; Huang, B.; and Shaban, M.. “Naïve or Sophisticated? Information Disclosure and Investment Decisions in Peer to Peer Lending.” Journal of Corporate Finance, forthcoming (2022).Google ScholarPubMed
Claessens, S.; Frost, J.; Turner, G.; and Zhu, F.. “Fintech Credit Markets Around the World: Size, Drivers and Policy Issues.” BIS Quarterly Review, (2018), 1–49.Google Scholar
Coakley, J., and Lazos, A.. “New Developments in Equity Crowdfunding: A Review.” Review of Corporate Finance, 1 (2021), 341–405.CrossRefGoogle Scholar
Combes, P.-P.; Duranton, G.; Gobillon, L.; Puga, D.; and Roux, S.. “The Productivity Advantages of Large Cities: Distinguishing Agglomeration from Firm Selection.” Econometrica, 80 (2012), 2543–2594.Google Scholar
Cornaggia, J.; Wolfe, B.; and Yoo, W.. “Crowding Out Banks: Credit Substitution by Peer-to-Peer Lending.” Mimeo (2018).Google Scholar
Corradin, S.; Gropp, R.; Huizinga, H.; and Laeven, L.. “The Effect of Personal Bankruptcy Exemptions on Investment in Home Equity.” Journal of Financial Intermediation, 25 (2016), 77–98.CrossRefGoogle Scholar
Cumming, D. J., and Li, D.. “Public Policy, Entrepreneurship, and Venture Capital in the United States.” Journal of Corporate Finance, 23 (2013), 345–367.CrossRefGoogle Scholar
Cumming, D. J., and Schwienbacher, A.. “Fintech Venture Capital.” Corporate Governance: An International Review, 26 (2018), 374–389.CrossRefGoogle Scholar
Cumming, D.J., and Hornuf, L.. “Marketplace Lending of Small- and Medium-Sized Enterprises.” Strategic Entrepreneurship Journal 16 (2022), 32–66. https://doi.org/10.1002/sej.1411 CrossRefGoogle Scholar
Danisewicz, P., and Elard, I.. “The Real Effects of Financial Technology: Marketplace Lending and Personal Bankruptcy.” Mimeo (2018).CrossRefGoogle Scholar
Danisewicz, P.; McGowan, D.; Onali, E.; and Schaeck, K.. “Debt Priority Structure, Market Discipline and Bank Conduct.” Review of Financial Studies, 31 (2018), 4493–4555.CrossRefGoogle Scholar
de Roure, C.; Pelizzon, L.; and Thakor, A. V.. “P2p Lenders Versus Banks: Cream Skimming or Bottom Fishing?” SAFE Working Paper Series 206, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt (2019).Google Scholar
Degryse, H., and Ongena, S.. “Distance, Lending Relationship and Competition.” Journal of Finance 55 (2005), 231–266.CrossRefGoogle Scholar
Fan, W., and White, M. J.. “Personal Bankruptcy and the Level of Entrepreneurial Activity.” Journal of Law and Economics, 46 (2003), 543–567.CrossRefGoogle Scholar
Fenwick, M.; McCahery, J.; and Vermeulen, E.. “Fintech and the Financing of Entrepreneurs.” ECGI Working Paper Number 369/2017 (2017).Google Scholar
GAO. “Person-to-Person Lending: New Regulatory Challenges Could Emerge as the Industry Grows.” Government Accountability Office Report to Congressional Committees (2011).Google Scholar
Hauswald, R., and Marquez, R.. “Competition and Strategic Information Acquisition in Credit Markets.” Review of Financial Studies, 19 (2006), 967–1000.CrossRefGoogle Scholar
Helpman, E.; Melitz, M.; and Rubinstein, Y.. “Estimating Trade Flows: Trading Partners and Trading Volumes.” Quarterly Journal of Economics, 123 (2008), 441–487.CrossRefGoogle Scholar
Hopenhayn, H. “Entry, Exit, and Firm Dynamics in Long Run Equilibrium.” Econometrica, 60 (1992), 1127–1150.CrossRefGoogle Scholar
Iyer, R.; Khwaja, A. I; Luttmer, E.; and Shue, K.. “Screening Peers Softly: Inferring the Quality of Small Borrowers.” Management Science, 62 (2015), 1554–1577.Google Scholar
Kerr, W., and Nanda, R.. “Democratizing Entry: Banking Deregulation, Financing Constraints, and Entrepreneurship.” Journal of Financial Economics, 94 (2009), 124–149.CrossRefGoogle Scholar
Kerr, W., and Nanda, R.. “Banking Deregulations, Financing Constraints, and Firm Entry Size.” Journal of the European Economic Association, 8 (2010), 582–593.CrossRefGoogle Scholar
Keuschnigg, C., and Nielsen, S. B.. “Tax Policy, Venture Capital, and Entrepreneurship.” Journal of Public Economics, 87 (2003), 175–203.CrossRefGoogle Scholar
Lee, D. S. “Randomized Experiments from Non-Random Selection in U.S. House Elections.” Journal of Econometrics, 142 (2008), 675–697.CrossRefGoogle Scholar
Lee, D. S., and Lemieux, T.. “Regression Discontinuity Designs in Economics.” Journal of Economic Literature, 48 (2010), 281–355.CrossRefGoogle Scholar
Levinsohn, J., and Petrin, A.. “Estimating Production Functions Using Inputs to Control for Unobservables.” Review of Economic Studies, 70 (2003), 317–341.CrossRefGoogle Scholar
McCrary, J. “Manipulation of the Running Variable in the Regression Discontinuity Design: A Density Test.” Journal of Econometrics, 142 (2008), 698–714.CrossRefGoogle Scholar
Melitz, M. “The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity.” Econometrica, 71 (2003), 1695–1725.Google Scholar
Nemoto, N.; Storey, D.; and Huang, B.. “Optimal Regulation of p2p Lending for Small and Medium-Sized Enterprises.” ADBI Working Paper Series No. 912 (2019).CrossRefGoogle Scholar
Petersen, M., and Rajan, R. G.. “The Effect of Credit Market Competition on Lending Relationships.” Quarterly Journal of Economics, 110 (1995), 407–443.CrossRefGoogle Scholar
Petersen, M., and Rajan, R. G.. “Does Distance Still Matter? The Information Revolution in Small Business Lending.” Journal of Finance, 57 (2002), 2533–2570.Google Scholar
Pierrakis, Y. “Peer-to-Peer Lending to Businesses: Investors’ Characteristics, Investment Criteria and Motivation.” International Journal of Entrepreneurship and Innovation, 20 (2019), 239–250.CrossRefGoogle Scholar
Popov, A. “Venture Capital and Industry Structure: Evidence from Local US Markets.” Review of Finance, 18 (2014), 1059–1096.CrossRefGoogle Scholar
Rajan, R. G., and Zingales, L.. “Financial Dependence and Growth.” American Economic Review, 88 (1998), 559–586.Google Scholar
Rossi, A.; Vanacker, T.; and Vismara, S.. “Equity Crowdfunding: New Evidence from US and UK Markets.” Review of Corporate Finance, 1 (2021), 407–453.CrossRefGoogle Scholar
Tang, H. “Peer-to-Peer Lenders Versus Banks: Substitutes or Complements?” Review of Financial Studies, 32 (2019), 1900–1938.CrossRefGoogle Scholar
Tykvová, T. “When and Why Do Venture-Capital-Backed Companies Obtain Venture Lending?” Journal of Financial and Quantitative Analysis, 52 (2017), 1049–1080.CrossRefGoogle Scholar
Zhang, J., and Liu, P.. “Rational Herding in Microloan Markets.” Management Science, 58 (2012), 892–912.CrossRefGoogle Scholar
Supplementary material: PDF

Cumming et al. supplementary material

Online Appendix

Download Cumming et al. supplementary material(PDF)
PDF 241.2 KB