Comparative Evidence on the Performance of Institutional Investors in Online Business Lending

48 Pages Posted: 10 Mar 2018 Last revised: 17 Sep 2018

See all articles by Mark Cummins

Mark Cummins

Dublin City University Business School

Ciaran Mac an Bhaird

Dublin City University

Pierangelo Rosati

Dublin City University Business School

Theodore G. Lynn

Irish Centre for Cloud Computing and Commerce

Date Written: September 7, 2018

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.

Keywords: institutional investors; retail investors; business lending; online credit markets; information asymmetries

JEL Classification: G23, E51

Suggested Citation

Cummins, Mark and Mac an Bhaird, Ciarán and Rosati, Pierangelo and Lynn, Theodore G., Comparative Evidence on the Performance of Institutional Investors in Online Business Lending (September 7, 2018). Available at SSRN: https://ssrn.com/abstract=3137177 or http://dx.doi.org/10.2139/ssrn.3137177

Mark Cummins

Dublin City University Business School ( email )

Dublin 9
Ireland

Ciarán Mac an Bhaird (Contact Author)

Dublin City University ( email )

Ireland 9
Dublin 9, leinster 9
Ireland

Pierangelo Rosati

Dublin City University Business School ( email )

Ireland 9
Dublin 9, Dublin 9
Ireland

Theodore G. Lynn

Irish Centre for Cloud Computing and Commerce ( email )

Dublin
Collins Avenue
Dublin, NA Dublin 9
Ireland
35317006873 (Phone)
35317005446 (Fax)

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