The Digital Credit Divide: Marketplace Lending and Entrepreneurship

Cumming, Douglas; Farag, Hisham; Johan, Sofia; McGowan, Danny

Abstract

We conjecture that marketplace lending provokes an increase in the quantity of entrepreneurship, particularly in more regionally disadvantaged areas, albeit at lower average quality. Using a fuzzy regression discontinuity design that exploits exogenous variation in borrowers’ access to marketplace loans along U.S. state borders, we estimate a 10% increase in marketplace lending causes a 0.44% increase in business establishments per capita. The effects are more pronounced for less experienced entrepreneurs, for small and less profitable firms, firms more dependent upon external finance, in industries with lower sunk costs of entry, and for low-income regions with inferior access to financial institutions.

Citation

Cumming, D., Farag, H., Johan, S., & McGowan, D. (2022). The Digital Credit Divide: Marketplace Lending and Entrepreneurship. Journal of Financial and Quantitative Analysis, 57(7), 2659-2692. https://doi.org/10.1017/s0022109022000357

• Journal Article Type: Article
• Acceptance Date: Sep 1, 2022
• Online Publication Date: Jul 11, 2022
• Publication Date: 2022-11
• Deposit Date: Jun 10, 2024
• Journal: Journal of Financial and Quantitative Analysis
• Print ISSN: 0022-1090
• Electronic ISSN: 1756-6916
• Publisher: Cambridge University Press
• Peer Reviewed: Peer Reviewed
• Volume: 57
• Issue: 7
• Pages: 2659-2692
• DOI: https://doi.org/10.1017/s0022109022000357
• Public URL: https://durham-repository.worktribe.com/output/2480830