Abstract
We provide new insights into the business lending decisions of institutional investors in online credit markets. We benchmark the lending performance of institutional investors against that of retail investors. Institutional investors generally screen loans better than retail investors, while gaining more on repaid loans. We find no evidence that the loan selection of institutional investors minimises loan default risk. Institutional investors are more (less) exposed to default risk on large (small) loan lending. Uniquely segmenting the retail investor base by crowd size, however, shows that institutional investors only outperform small and medium sized crowds. This evidence suggests that group heterogeneity may underlie the ability of larger sized crowds to manage information asymmetry. Institutional investors are shown to exploit the auction process to their advantage, with this evidence changing when the platform moved to a fixed rate system.
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