Do Local Capital Market Conditions Affect Consumers' Borrowing Decisions?

Abstract:     
Studying consumer financing decisions is difficult because of endogeneity problems and scarce data. We use new data and an exogenous change in an interest rate ceiling facing consumers seeking loans from an online peer-to-peer lending intermediary to test how access to finance affects consumers’ borrowing decisions. A differences-in-differences approach reveals that good access to local bank finance causes consumers who seek peer-to-peer loans to do so at lower interest rates. We find that local finance plays a larger role in how consumers seek loans than local economic conditions like per capita income. Our results are particularly strong for borrowers with poor credit and those seeking small loans.

Number of Pages in PDF File: 54

working papers series