Regulatory Circumvention: Underpricing and Flipping in Marketplace Lending

45 Pages Posted: 8 Nov 2018 Last revised: 24 Nov 2019

See all articles by Shyam Venkatesan

Shyam Venkatesan

Ivey Business School, Western University

Brian Wolfe

University of Texas at San Antonio

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

Woongsun Yoo

Central Michigan University

Date Written: November 18, 2019

Abstract

Marketplace lending platforms (MLPs) function similar to IPO underwriters by matching capital demanders with suppliers of capital and extracting a flat fee as compensation. Using the lens of the underwriter literature, we examine motives of MLPs and find evidence that they underprice the primary offering of debt securities. This discount appears to be driven by the need to circumvent complex regulatory restrictions on investor participation. Our evidence suggests this discount allows primary market investors to flip securities into the secondary market for notes, thus providing the platform a mechanism to access restricted investors. We provide evidence that the MLP discount is unwound as investor restrictions are removed. Our results underscore the parallels between new financial technology (FinTech) firms and traditional agents such as underwriters but also the unintended consequences of complex FinTech regulation.

Keywords: IPO, Underwriter Discount, Peer-to-peer Lending, FinTech, Marketplace Lending, Crowdfunding, Financial Intermediation

JEL Classification: G21, G23, L81, D53, G28

Suggested Citation

Venkatesan, Shyam Sunder and Wolfe, Brian and Yang, Jun and Yoo, Woongsun, Regulatory Circumvention: Underpricing and Flipping in Marketplace Lending (November 18, 2019). Available at SSRN: https://ssrn.com/abstract=3281366

Shyam Sunder Venkatesan

Ivey Business School, Western University ( email )

1151 Richmond St
London, Ontario N6A 3K7
Canada

Brian Wolfe (Contact Author)

University of Texas at San Antonio ( email )

San Antonio, TX 78249
United States

HOME PAGE: http://https://sites.google.com/site/swimwolfe/

Jun Yang

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

Woongsun Yoo

Central Michigan University ( email )

Mount Pleasant, MI 48859
United States

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