Geographical Proximity and Enhanced Attention in P2B Crowdlending Strategies
47 Pages Posted: 21 Jun 2021 Last revised: 7 Mar 2022
Date Written: March 3, 2022
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
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