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Regulatory constraint and small business lending: do innovative peer-to-peer lenders have an advantage?

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  • Çağlar Hamarat

    (University of Strathclyde
    Kütahya Dumlupınar Üniversitesi)

  • Daniel Broby

    (Ulster Business School)

Abstract

This paper investigates whether innovative Peer-to-Peer lending by FinTechs’ has a regulatory advantage over the big banks in respect of small business lending. We do this through the lens of the regulations imposed by the Dodd-Frank Act, using a difference-in-difference methodology. The Act tightened traditional bank credit standards on business loans, especially for small firms. However, the new FinTech lenders were not subject to the same regulatory burden. We find that traditional banks significantly reduced their lending to small businesses, as compared to their FinTech competitors. Our results suggest that while the Dodd-Frank Act constrained lending to small businesses, innovative new lending models gained a regulatory advantage and the Peer-to-Peer lenders capitalized on this.

Suggested Citation

  • Çağlar Hamarat & Daniel Broby, 2022. "Regulatory constraint and small business lending: do innovative peer-to-peer lenders have an advantage?," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-25, December.
    • Handle: RePEc:spr:fininn:v:8:y:2022:i:1:d:10.1186_s40854-022-00377-y
    DOI: 10.1186/s40854-022-00377-y
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    More about this item

    Keywords

    Small business; Dodd-Frank; FinTech; Innovative lending models;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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