Published online by Cambridge University Press: 01 September 2022
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.
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.