Geographical Proximity and Enhanced Attention in P2B Crowdlending Strategies

Carole Gresse and Hugo Marin
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Carole Gresse: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique
Hugo Marin: DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique

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Abstract: Using data from a peer-to-business crowdlending platform that exploits an auction-driven system to fund corporate loans, we show that non-professional investors are subject to a geographical-proximity bias. They are more likely to win the auctions of borrowers located close to their place of residence notwithstanding that they are not better informed about their creditworthiness. Unexpectedly, this behavioral bias distorts the loan rate discovery processby increasing the cost of funding for borrowers. This adverse effect results from the greaterability of local investors to submit winning bids at an early stage. This ability is gained from their experience in previous auctions of geographically close borrowers. This suggests that the familiarity feeling stemming from geographical closeness strengthens investor attention,and thereby improves lenders' knowledge about the dynamics of the order flow in local borrowers' auctions.

Keywords: peer-to-business crowdlending; crowdfunding; behavioral finance; loan performance; price discovery process (search for similar items in EconPapers)
Date: 2022-07-11
New Economics Papers: this item is included in nep-pay and nep-ure
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Published in 2022 FMA European Conference, Financial Management Association, Jul 2022, Lyon, France

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