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Geographical-Proximity Bias in P2B Crowdlending Strategies

Gresse, Carole; Marin, Hugo (2021), Geographical-Proximity Bias in P2B Crowdlending Strategies. https://basepub.dauphine.psl.eu/handle/123456789/21751

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Gresse,Marin2021.pdf (349.4Kb)
Type
Document de travail / Working paper
External document link
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3864118
Date
2021
Series title
SSRN Working Paper Series
Pages
43
Metadata
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Author(s)
Gresse, Carole
Dauphine Recherches en Management [DRM]
Marin, Hugo
Dauphine Recherches en Management [DRM]
Abstract (EN)
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 processby increasing the cost of funding for borrowers. This adverse effect results from the greaterability 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.
Subjects / Keywords
peer-to-business crowdlending; crowdfunding; behavioral finance; loan performance; price discovery process
JEL
G11 - Portfolio Choice; Investment Decisions
G14 - Information and Market Efficiency; Event Studies; Insider Trading
G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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