Risks and returns in crowdlending

Crowdlending has emerged in recent years as an innovative way to fund financially-constrained new ventures and small companies. However, digitalized funding is a new technology itself and as such it is prone to mispricing and inefficiencies. We investigate whether peer-to-peer crowdlending to businesses provides investors with promised returns consistent with the level of risk borne. By studying over 6000 loans mediated on 73 European platforms from 2012 to 2018 we show that the ex-ante returns are inversely related to loans’ riskiness and tenure, suggesting that, on average, crowdfunded loans are mispriced. Our results have important implications for the debate about the role of regulation in FinTech and the access to debt funding for entrepreneurial ventures.