Marketplace Lending of SMEs
By Douglas J. Cumming (York University) & Lars Hornuf (University of Trier)
Abstract: Marketplace lending refers to online platforms facilitating loans from individuals to private small and medium sized enterprises (SMEs). We conjecture that the information conveyed by the platform (ratings) plays a pronounced role in influencing the borrowing success of SMEs, and that more sophisticated financial information and issues of adverse selection are largely irrelevant in these markets. We introduce a first-ever dataset of 414 marketplace loans and track 8,236 online loan-days to test these propositions. The data examined provide strong support for the importance of simple ratings in influencing investor behavior. The data further indicate the importance of competing investment opportunities.
Full Article: Social Science Research Network