Geographical-Proximity Bias in P2B Crowdlending Strategies

43 Pages Posted: 21 Jun 2021

See all articles by Carole Gresse

Carole Gresse

Université Paris Dauphine-PSL

Hugo Marin

Université Paris Dauphine-PSL

Date Written: June 9, 2021

Abstract

Using data from a peer-to-business crowdlending platform that exploits an auction-driven system to fund corporate loans, we show that non-professional 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 notwithstanding that they are not better informed about their 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 familiarity feeling stemming from geographical closeness strengthens investor attention, and thereby improves lenders’ knowledge about 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

JEL Classification: G11, G14, G23, G43

Suggested Citation

Gresse, Carole and Marin, Hugo, Geographical-Proximity Bias in P2B Crowdlending Strategies (June 9, 2021). 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

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
11
Abstract Views
117
PlumX Metrics