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The Digital Credit Divide: Marketplace Lending and Entrepreneurship

Published online by Cambridge University Press:  01 September 2022

Douglas Cumming Open the ORCID record for Douglas Cumming [Opens in a new window] ,
Hisham Farag ,
Sofia Johan  and
Danny McGowan
Douglas Cumming*
Affiliation:
College of Business, Florida Atlantic University and University of Birmingham
Hisham Farag
Affiliation:
Birmingham Business School, University of Birminghamh.farag@bham.ac.uk
Sofia Johan
Affiliation:
Business School, Florida Atlantic University and University of Aberdeensjohan@fau.edu
Danny McGowan
Affiliation:
Birmingham Business School, University of Birminghamd.mcgowan@bham.ac.uk
*
cummingd@fau.edu (corresponding author)
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Abstract

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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.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 57 , Issue 7 , November 2022 , pp. 2659 - 2692
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (https://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We are grateful for helpful comments and suggestions provided by an anonymous referee, Paul Malatesta (the editor), seminar participants at Groningen University, the University of Birmingham, the University of Exeter, the University of Kent, the University of Nottingham, and conference participants at AOM 2019 and the 2019 European Finance Association annual meeting.

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