Social Networks and Credit Supply and Demand

62 Pages Posted: 14 Dec 2020 Last revised: 24 Aug 2022

See all articles by Linda Allen

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Lin Peng

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Yu Shan

Syracuse University - Whitman School of Management

Date Written: May 31, 2020

Abstract

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

Suggested Citation

Allen, Linda and Peng, Lin and Shan, Yu, Social Networks and Credit Supply and Demand (May 31, 2020). Available at SSRN: https://ssrn.com/abstract=3537714 or http://dx.doi.org/10.2139/ssrn.3537714

Linda Allen

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States
646-312-3463 (Phone)
646-312-3451 (Fax)

HOME PAGE: http://stern.nyu.edu/~lallen

Lin Peng (Contact Author)

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Yu Shan

Syracuse University - Whitman School of Management ( email )

721 University Avenue
Syracuse, NY 13244-2130
United States

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