Abstract
AbstractWe 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.
Highlights
Over the past decade, online marketplace lenders have become an important source of credit for businesses
We find the state-level restrictions have a large effect on the supply of marketplace credit
We study whether the discontinuity in marketplace lending translates into higher rates of entrepreneurship
Summary
Online marketplace lenders have become an important source of credit for businesses. Prior research investigates the effect of banking deregulation episodes on entrepreneurship and creative destruction (Black and Strahan (2002), Cetorelli and Strahan (2006), Bertrand et al (2007), Kerr and Nanda (2009, 2010)) This literature shows that relaxing bank branching restrictions leads to an increase in the rate of incorporations, firm entry, changes to industry dynamics, and an increase in the equilibrium number of firms. These effects are attributed to deregulation leading to more intense competition provoking an increase in the supply of bank credit to creditconstrained entrepreneurs We complement this body of research by showing the Fintech sector has similar effects on entrepreneurship, marketplaces appear to expand credit to businesses and potential entrepreneurs that banks are unwilling to lend to.
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