Risks and Returns in Crowdlending

Abstract

Crowdlending has emerged in recent years as an innovative way to finance new ventures and small companies. However, digitalized funding is a new technology itself; therefore, it is prone to mispricing and inefficiencies. We investigate whether peer-to-peer crowdlending to businesses provides investors with returns consistent with the level of risk borne. By studying over 3000 loans mediated on 68 European platforms we show that the returns are inversely related to loans’ riskiness, suggesting that, on average, crowdfunded loans are mispriced. Our results have important implications for the debate about the role of regulation in FinTech.

Keywords: Crowdfunding, Crowdlending, FinTech, Peer-to-Peer Lending, Credit Risks, Innovation Financing, Financial Anomalies

JEL Classification: G24, G32, L26, F23