Regulatory constraint and small business lending: do innovative peer-to-peer lenders have an advantage?

Çağlar Hamarat () and Daniel Broby ()
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Çağlar Hamarat: University of Strathclyde
Daniel Broby: Ulster Business School

Financial Innovation, 2022, vol. 8, issue 1, 1-25

Abstract: Abstract This paper investigates whether innovative Peer-to-Peer lending by FinTechs’ has a regulatory advantage over the big banks in respect of small business lending. We do this through the lens of the regulations imposed by the Dodd-Frank Act, using a difference-in-difference methodology. The Act tightened traditional bank credit standards on business loans, especially for small firms. However, the new FinTech lenders were not subject to the same regulatory burden. We find that traditional banks significantly reduced their lending to small businesses, as compared to their FinTech competitors. Our results suggest that while the Dodd-Frank Act constrained lending to small businesses, innovative new lending models gained a regulatory advantage and the Peer-to-Peer lenders capitalized on this.

Keywords: Small business; Dodd-Frank; FinTech; Innovative lending models (search for similar items in EconPapers)
JEL-codes: G20 G21 G23 G28 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1186/s40854-022-00377-y

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