Institutional investment in online business lending markets

Mark Cummins, Ciarán Mac an Bhaird*, Pierangleo Rosati, Theo Lynn

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)
11 Downloads (Pure)

Abstract

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.

Original languageEnglish
Article number101542
Number of pages15
JournalInternational Review of Financial Analysis
Volume71
Early online date15 Jun 2020
DOIs
Publication statusPublished - 31 Oct 2020
Externally publishedYes

Keywords

  • default risk minimisation
  • institutional investment
  • lending efficiency
  • online business lending

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