The Digital Credit Divide: Marketplace Lending and Entrepreneurship

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.

Automated summary

Marketplace lending leads to an increase in the quantity of entrepreneurship, especially in economically disadvantaged areas, although at lower average quality. The effects are more significant for less experienced entrepreneurs, small and less profitable firms, firms reliant on external finance, industries with lower barriers to entry, and low-income regions with limited access to financial institutions.