TY - JOUR
T1 - Institutional investment in online business lending markets
AU - Cummins, Mark
AU - Mac an Bhaird, Ciarán
AU - Rosati, Pierangleo
AU - Lynn, Theo
N1 - Publisher Copyright:
© 2020 The Author(s)
PY - 2020/10
Y1 - 2020/10
N2 - We provide new insights into the business lending decisions of institutional investors in online credit markets by benchmarking their lending performance against that of retail investors.We find superior performance for loans financed by institutional investors, although large sized retail investor groups achieve equivalent performance. Lending decisions of institutional investors are not default risk minimising, and we quantify lending inefficiencies. From a platform perspective, we show that (i) the platform-administered loan allocation process is not biased in favour of institutional investors, (ii) institutional participation in the retail marketplace is not a distorting factor in loan performance, and (iii) the platform's move to a fixed rate system had detrimental effects on loan outcomes for institutional investors. The superior loan performance achieved by institutional investors is confined to the auction period, when institutional investors had autonomy over setting interest rates.
AB - We provide new insights into the business lending decisions of institutional investors in online credit markets by benchmarking their lending performance against that of retail investors.We find superior performance for loans financed by institutional investors, although large sized retail investor groups achieve equivalent performance. Lending decisions of institutional investors are not default risk minimising, and we quantify lending inefficiencies. From a platform perspective, we show that (i) the platform-administered loan allocation process is not biased in favour of institutional investors, (ii) institutional participation in the retail marketplace is not a distorting factor in loan performance, and (iii) the platform's move to a fixed rate system had detrimental effects on loan outcomes for institutional investors. The superior loan performance achieved by institutional investors is confined to the auction period, when institutional investors had autonomy over setting interest rates.
KW - Default risk minimisation
KW - Institutional investment
KW - Lending efficiency
KW - Online business lending
UR - https://www.scopus.com/pages/publications/85086660361
U2 - 10.1016/j.irfa.2020.101542
DO - 10.1016/j.irfa.2020.101542
M3 - Article
AN - SCOPUS:85086660361
SN - 1057-5219
VL - 71
JO - International Review of Financial Analysis
JF - International Review of Financial Analysis
M1 - 101542
ER -