Do Local Capital Market Conditions Affect Consumers' Borrowing Decisions?

Management Science, Forthcoming

33 Pages Posted: 29 Jul 2010 Last revised: 13 Mar 2015

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business

Jess Cornaggia

Pennsylvania State University - Department of Finance

Umit G. Gurun

University of Texas at Dallas - Naveen Jindal School of Management

Date Written: December 1, 2014

Abstract

This paper uses detailed data from an online peer-to-peer lending intermediary to test whether local access to finance affects consumers’ willingness to pay for loans. After controlling for local economic conditions and borrower credit quality, we find that borrowers who reside in areas with good access to bank finance request loans with lower interest rates. This effect is stronger for borrowers with poor credit and those seeking small loans, suggesting that local access to finance is more important for marginal borrowers. Overall, our findings shed light on how consumers substitute between alternative sources of finance.

Keywords: Peer-to-peer, Access to finance, Bank competition, Finance-growth nexus, Consumer finance, Household finance

Suggested Citation

Butler, Alexander W. and Cornaggia, Jess and Gurun, Umit G., Do Local Capital Market Conditions Affect Consumers' Borrowing Decisions? (December 1, 2014). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1650617 or http://dx.doi.org/10.2139/ssrn.1650617

Alexander W. Butler

Rice University - Jesse H. Jones Graduate School of Business ( email )

MS 531
Houston, TX 77005
United States
713-348-6341 (Phone)

HOME PAGE: http://www.owlnet.rice.edu/~awbutler/

Jess Cornaggia (Contact Author)

Pennsylvania State University - Department of Finance ( email )

University Park, PA 16802
United States

HOME PAGE: http://jesscornaggia.com

Umit G. Gurun

University of Texas at Dallas - Naveen Jindal School of Management ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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