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Geographic proximity between lender and borrower: how does it affect crowdfunding?

Author

Listed:
  • Hakwoon Kim
  • Jooyoung Kim

Abstract

Purpose - The purpose of this paper is to investigate the role of geographic distance in crowdfunding. Design/methodology/approach - Under the assumption that investors are more likely to be attracted to local borrowers, this paper investigates whether this phenomenon is because of affinity or an informational advantage. The authors define a local investor as an investor who is from the same US state as the borrower. Findings - The paper finds that loans offered by local investors have lower interest rates and a lower default probability. In addition, when the level of local investment is highest, the effects of informational advantage are strengthened. Research limitations/implications - Overall, the evidence of this paper suggests that local investors have an informational advantage over more geographically distant investors. Originality/value - This paper contributes to the ongoing debate regarding whether geographic distance continues to be important in the internet age.

Suggested Citation

  • Hakwoon Kim & Jooyoung Kim, 2017. "Geographic proximity between lender and borrower: how does it affect crowdfunding?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 16(4), pages 462-477, November.
    • Handle: RePEc:eme:rafpps:raf-02-2016-0017
    DOI: 10.1108/RAF-02-2016-0017
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    Citations

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    Cited by:

    1. Cervantes-Zacarés, Desamparados & Martí-Sánchez, Myriam & Pascual-Soler, Marcos & Berné-Martínez, José-Miguel, 2023. "The relevance of crowdfunding in the entrepreneurial framework from a specialized media perspective," Journal of Business Research, Elsevier, vol. 158(C).
    2. Jiang, Jiajun & Liu, Yu-Jane & Lu, Ruichang, 2020. "Social heterogeneity and local bias in peer-to-peer lending – evidence from China," Journal of Comparative Economics, Elsevier, vol. 48(2), pages 302-324.

    More about this item

    Keywords

    Crowdfunding; Geographic proximity; Informational advantage; G32;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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