Geographical Proximity and Enhanced Attention in P2B Crowdlending Strategies

47 Pages Posted: 21 Jun 2021 Last revised: 7 Mar 2022

See all articles by Carole Gresse

Carole Gresse

Université Paris Dauphine-PSL

Hugo Marin

Université Paris Dauphine-PSL

Date Written: March 3, 2022

Abstract

Using data from a peer-to-business crowdlending platform that exploits an auction-driven system to fund corporate loans, we show that nonprofessional investors are subject to a geographical-proximity bias. They are more likely to win the auctions of borrowers located close to their place of residence despite not being better informed about the latter's creditworthiness. Unexpectedly, this behavioral bias distorts the loan rate discovery process by increasing the cost of funding for borrowers. This adverse effect results from the greater ability of local investors to submit winning bids at an early stage. This ability is gained from their experience in previous auctions of geographically close borrowers. This suggests that the feeling of familiarity stemming from geographical closeness increases investor attention and thereby improves lenders' knowledge of the dynamics of the order flow in local borrowers' auctions.

Keywords: geographical-proximity bias, peer-to-business crowdlending, crowdfunding, behavioral finance, loan performance, price discovery, investor attention

JEL Classification: G11, G14, G23, G43

Suggested Citation

Gresse, Carole and Marin, Hugo, Geographical Proximity and Enhanced Attention in P2B Crowdlending Strategies (March 3, 2022). Available at SSRN: https://ssrn.com/abstract=3864118 or http://dx.doi.org/10.2139/ssrn.3864118

Carole Gresse

Université Paris Dauphine-PSL ( email )

DRM
Place du Maréchal de Lattre de Tassigny
Paris cedex 16, 75775
France

HOME PAGE: http://www.carolegresse.com

Hugo Marin (Contact Author)

Université Paris Dauphine-PSL ( email )

Place du Maréchal de Lattre de Tassigny
Paris, 75016
France

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