Comparative Evidence on the Performance of Institutional Investors in Online Business Lending
48 Pages Posted: 10 Mar 2018 Last revised: 17 Sep 2018
Date Written: September 7, 2018
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.
Keywords: institutional investors; retail investors; business lending; online credit markets; information asymmetries
JEL Classification: G23, E51
Suggested Citation: Suggested Citation