Policy Uncertainty and Household Credit Access: Evidence from Peer-to-Peer Crowdfunding

Abstract

This paper studies how policy uncertainty affects household credit access. Using crowdfunding data from a major peer-to-peer (P2P) crowdfunding platform, Prosper.com, and a news-based policy uncertainty index developed by Baker, Bloom, and Baker (2016), we find that policy uncertainty negatively affects households’ access to small loans. Using an instrument variable approach and the difference-in-differences approach relying on plausibly exogenous variation in policy uncertainty generated by gubernatorial elections, we show that the relation is likely causal. Investors’ increased caution on deal selection and enhanced value of the “wait-and-see” option appear two plausible underlying channels through which policy uncertainty affects P2P crowdfunding. Further evidence suggests that policy uncertainty decreases households’ incentives to borrow at the aggregate level, and increases loan interest rates and default probabilities.

Keywords: Policy Uncertainty; Credit Access; Peer-to-Peer Crowdfunding

JEL Classification: G18; G21; D14