Geographic proximity between lender and borrower: how does it affect crowdfunding?

Abstract

PurposeThe purpose of this paper is to investigate the role of geographic distance in crowdfunding.Design/methodology/approachUnder the assumption that investors are more likely to be attracted to local borrowers, this paper investigates whether this phenomenon is because of affinity or an informational advantage. The authors define a local investor as an investor who is from the same US state as the borrower.FindingsThe paper finds that loans offered by local investors have lower interest rates and a lower default probability. In addition, when the level of local investment is highest, the effects of informational advantage are strengthened.Research limitations/implicationsOverall, the evidence of this paper suggests that local investors have an informational advantage over more geographically distant investors.Originality/valueThis paper contributes to the ongoing debate regarding whether geographic distance continues to be important in the internet age.