Local bias versus home bias: Evidence from debt-based crowdfunding

ABSTRACT

Local bias and home bias are conventional phenomena in the financial market. This paper examines whether local bias and home bias exist in virtual loan transactions on the debt-based crowdfunding marketplace. Using loan-level and lender-level transaction data from a large crowdfunding marketplace in China and employing a potential-dyad approach, we find that lenders are more likely to invest in local borrowers rather than in their hometown borrowers, indicating that local bias exists in this virtual marketplace rather than home bias. More interestingly, the local bias is more pronounced for local lenders whose work area and hometown are the same than for moving lenders who leave their hometowns. Furthermore, lenders’ local bias is more pronounced if lenders (borrowers) are from more trust-propensity (trustworthy) regions. Finally, we find that lending to local borrowers cannot significantly increase the welfare of lenders. Various specifications, alternative dependent variables, and alternative potential-dyad sets show that our empirical-based results are robust.

KEYWORDS:

• Local bias
• home bias
• debt-based crowdfunding
• peer-to-peer lending

JEL CLASSIFICATION:

• G11
• G21
• G40
• D90

Acknowledgements

The authors would like to thank the Editor and anonymous referees for their helpful comments and suggestions. Any remaining errors are our responsibility.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ We would like to thank an anonymous referee for pointing this out to us..

² We would like to thank an anonymous referee for pointing this out to us.

Additional information

Funding

This work was supported by the MOE (Ministry of Education in China) Project of Humanities and Social Sciences (No. 22YJC790055), Natural Science Foundation of Shandong Province (No. ZR2021QG057), National Natural Science Foundation of China (No. 71873079), and Fundamental Research Funds of Shandong University.