MIS Distinguished Speaker Series

9 – 10 am | Zoom

(send an email to ayabakan@temple.edu to get the Zoom link)

Abstact:

How should crowdfunding platforms alleviate information asymmetry between creators and crowdfunders? In traditional financial markets, public companies are required to disclose potential risks to their investors, and such risk disclosure requirements are enforced by legal and fiduciary regulations. In the crowdfunding context, however, such information asymmetry concerns are often addressed by crowd-based platforms. In this study, we examine whether and how risk disclosure of crowdfunding projects influences crowdfunders’ project perceptions and funding decisions. To examine the impact of risk disclosure holistically, we exploit a natural experiment, run two controlled experiments, and conduct a text-based machine learning analysis. We find that crowdfunders respond negatively to projects’ risk disclosure, while the negative effect of risk disclosure is smaller for projects that are more likely to deliver an expected reward. In addition, crowdfunders are sensitive to the content and presentation of disclosed risk information from projects and respond accordingly, though the association is stronger for more complex projects. We find that when projects are complex and challenging, funders pay more attention to risk information and the likelihood of receiving the promised rewards. These findings have implications for disclosure policies in crowd-based platforms and provide guidance for entrepreneurs seeking funds from crowds.

Where You Live Matters: The Impact of Local Financial Market Competition in Managing Online Peer-To-Peer Loans

Mohammad Saifur Rahman

Associate Professor of Management

Krannert School of Management, Purdue University

Friday, September 28, 2018

10:30 AM – noon

Speakman Hall Suite 200

Abstract

Internet related technologies have fundamentally changed many industries, and, in the age of financial technology (FinTech), a question that is being widely discussed is whether the local financial market structure still matters. Unlike traditional retail financial institutions, which are predominantly territorial, FinTech products — in particular, peer-to-peer (P2P) lending platforms — provide equal access to funds to borrowers from across the country, removing any typical geographic restrictions in borrowing options. However, if P2P lending platforms are not immune to competition from local financial institutions and borrowers ultimately gain from the strategic interactions between the local financial institutions and P2P platforms, where a borrower lives might continue to matter! Consequently, we study the impact of local financial market structure on borrowers’ personal loan management decisions — to prepay or to default — on the two leading P2P lending platforms, Lending Club and Prosper. We find consistently, across the two platforms, that an online borrower from a more competitive market is more likely to prepay and less likely to default. Additionally, this study offers novel insights regarding the extent and nature of the substitution between traditional financial institutions and their online, potentially disruptive, alternatives. Also, we utilize machine learning techniques that capitalize on the rich granularity of the data set to create a pseudo-experimental design and further validate the underlying mechanism behind our results. Going beyond P2P lending, these findings suggest that borrowers benefit disproportionately, based on their geographic location, from local lending institutions. We discuss managerial, practical, and policy implications for the burgeoning P2P lending industry as well as other crowd-based markets.

crowdfunding

Feb 19 – Keong Tae Kim to present “Risk Disclosure in Crowdfunding”

Risk Disclosure in Crowdfunding

Keong Tae Kim

Friday, Feb 19

9 – 10 am | Zoom

September 28 – Mohammad Saifur Rahman to Present “Where You Live Matters: The Impact of Local Financial Market Competition in Managing Online Peer-To-Peer Loans”