Social Networks and Credit Supply and Demand
62 Pages Posted: 14 Dec 2020 Last revised: 24 Aug 2022
Date Written: May 31, 2020
Social networks are associated with the demand for and supply of consumer and small business loans originated on lending marketplaces. Loan demand increases substantially with past borrowing activities of geographically distant but socially connected areas, with an elasticity of 0.21. Borrower-area social proximity to deposits increases funding likelihood by 5.61% and improves ex-post loan performance. We establish causality with granular instrumental variables obtained from natural disasters (demand-side) and financial adviser misconduct (supply-side). The results suggest social networks improve capital allocation by increasing the awareness of alternative lending platforms and facilitating the transmission of less accessible information complementary to loan-specific data.
Keywords: social network, online lending marketplaces, credit demand and supply, information transmission
JEL Classification: G20, G21, G23, G28, G29
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