Two of the most important credit suppliers on the capital market of the United States are commercial banks and online peer-to-peer (P2P)... Show moreTwo of the most important credit suppliers on the capital market of the United States are commercial banks and online peer-to-peer (P2P) lending platforms. Relaxing restrictions on interstate banking and intrastate branching in banking industry bring more competitions and better efficiency in the banking industry, which provides a much lower cost for firms to raise external funds. We find bank deregulations decrease investment-cash flow sensitivity of firms, which explains the declining trend of investment-cash flow sensitivity since the late 1970s. With the development of internet and transaction technology, online P2P lending platforms become more and more important in the capital market. However, the borrowers on P2P platforms are private individuals with limited official information. We document that when borrower’s official information is limited, social capital, a factor contains region based soft information, plays an important role in effecting online P2P lending activities. Show less
