Do Local Capital Market Conditions Affect Consumers' Borrowing Decisions?
Alexander W. Butler
Rice University - Jesse H. Jones Graduate School of Business
Pennsylvania State University - Department of Finance
Umit G. Gurun
University of Texas at Dallas - Naveen Jindal School of Management
December 1, 2014
Management Science, Forthcoming
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.
Number of Pages in PDF File: 33
Keywords: Peer-to-peer, Access to finance, Bank competition, Finance-growth nexus, Consumer finance, Household finance
Date posted: July 29, 2010 ; Last revised: March 13, 2015