The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study

The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study Gema Albort-Morant Departamento de Economía Financiera y Dirección de Operaciones, Facultad de Ciencias Económicas y Empresariales. Universidad de Sevilla, Sevilla, Spain [email protected] Emma Berenguer Departamento de Economía Financiera y Contabilidad Facultad de Ciencias Empresariales. Universidad Pablo de Olavide, Sevilla, Spain [email protected] Carlos Sanchís-Pedregosa Departamento de Economía Financiera y Dirección de Operaciones, Facultad de Ciencias Económicas y Empresariales. Universidad de Sevilla, Sevilla, Spain [email protected] Antonio Moreno-Moreno Departamento de Economía Financiera y Dirección de Operaciones, Facultad de Ciencias Económicas y Empresariales. Universidad de Sevilla, Sevilla, Spain [email protected] Abstract. This study explores the dynamics of investor behavior in the context of peer-to-business (P2B) crowdlending, focusing on how investor experience influences their investment intensity and risk assumption. Utilizing data from the Spanish P2B lending platform MytripleA, the research analyzes the investment patterns of 1340 private investors across 798 loans. The study investigates the relationship between the length of investors’ experience and their propensity to fund a larger number of projects and to undertake higher risk investments. It addresses key hypotheses that posit a positive association between investor experience and the decision to increase investment intensity and risk level. The methodology integrates robust partial least squares (PLS) structural equation modelling to validate the proposed Journal of Business Vol. 16, No. 1 pp. 155-176 eISSN 2078-9424 doi: 10.21678/jb.2025.2413 © Creative Commons Attribution 4.0 Received 11 July 2024 Accepted 3 September 2024 Journal of Business Vol. 16, No. 1, First Semester 2025 / Albort-Morant, Berenguer, Sanchís-Pedregosa & Moreno-Moreno 156 relationships. The results indicate that experienced investors tend to diversify their investment portfolios by engaging in riskier projects, confirming the hypothesized positive relationships. These findings contribute to the understanding of investor behavior in crowdlending, offering insights for platform operators and potential investors regarding investment strategies and risk management. The study also highlights the importance of investor experience in influencing investment decisions, underlining its role in the dynamic and evolving landscape of crowdlending. Keywords: Crowdlending, investor behaviour, risk management, investment intensity, peer-to-business (P2B), lending La influencia de la experiencia del inversor en la intensidad de la inversión y la asunción de riesgos en crowdlending: Un estudio empírico Resumen. Este estudio explora las dinámicas del comportamiento de los inversores en el contexto del crowdlending de tipo peer-to-business (P2B), centrándose en cómo la experiencia del inversor influye en su intensidad de inversión y asunción de riesgos. Utilizando datos de la plataforma española de préstamos P2B MytripleA, la investigación analiza los patrones de inversión de 1340 inversores privados en 798 préstamos. El estudio investiga la relación entre la duración de la experiencia del inversor y su propensión a financiar un mayor número de proyectos y asumir inversiones de mayor riesgo. Se abordan hipótesis clave que plantean una asociación positiva entre la experiencia del inversor y la decisión de aumentar la intensidad de la inversión y el nivel de riesgo. La metodología integra un modelo robusto de ecuaciones estructurales con mínimos cuadrados parciales (PLS) para validar las relaciones propuestas. Los resultados indican que los inversores con experiencia tienden a diversificar sus carteras de inversión participando en proyectos más riesgosos, confirmando las relaciones positivas planteadas. Estos hallazgos contribuyen a la comprensión del comportamiento de los inversores en crowdlending, ofreciendo ideas para los operadores de plataformas y posibles inversores en cuanto a estrategias de inversión y gestión del riesgo. El estudio también destaca la importancia de la experiencia del inversor en la toma de decisiones de inversión, subrayando su papel en el dinámico y evolutivo panorama del crowdlending. Palabras clave: Crowdlending, comportamiento del inversor, gestión del riesgo, intensidad de la inversión, peer-to-business (P2B), préstamos 157 The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study 1. Introduction Alternative financing, including crowdlending and crowdfunding, began to thrive worldwide in 2008 in response to the financial restrictions imposed by banks and other traditional financial institutions after the Great Recession. While crowdfunding involves raising small amounts of money from a large group of people to fund projects or ventures, crowdlending, also known as peer-to-peer (P2P) finance, focuses on lending capital directly to individuals or businesses, typically bypassing traditional financial institutions. In turn, crowdsourcing refers to obtaining services, ideas, or content from a large group of people, often through an online platform. These concepts are related but distinct, as each serves a different purpose in leveraging the “crowd.” Peer-to-peer (P2P) finance underwent rapid growth and was forecast to significantly impact project financing (Assenova et al., 2016). Since then, this source of financing has become increasingly consolidated, and the fintech sector has continued to increase its volume worldwide (Ziegler et al. 2020). P2P lending has attracted investors who have been discouraged by poor stock market returns and the low interest rates offered by traditional banks (Brennan 2009). The Wall Street Journal reported that investors who operate on the major P2P platforms have achieved an annual return of 10% or more at a time of historically low interest rates. These platforms have also attracted major institutional investors, such as hedge funds and wealth management companies (Light, 2012). However, research on P2P lending remains scattered and mainly focuses on topics related to borrowers (Pang & Yang, 2020), being restricted largely by limited access to available information, especially with regard to lenders (Culkin et al. 2016). Usually, P2B lending projects involves three entities: borrowers, funders (investors), and platforms (Belleflamme et al., 2015). Many studies have analyzed the role of internet-based P2P lending platforms (Belleflamme et al. 2014), mechanisms for increasing borrower reliability (Yum et al., 2012) or campaign success (Sanchís-Pedregosa et al. 2020; Slimane & Rousseau 2020), and other related topics. It is essential to clarify that while both P2P and P2B (peer-to-business) lending are forms of crowdlending, they differ in the type of borrower. In P2P lending, the borrower is typically an individual, whereas in P2B lending, the borrower is a business. Along these lines, very little is known about the individuals who lend money through P2P lending platforms (Pierrakis, 2019), though related studies on traditional lending, crowdfunding, and crowdsourcing can shed light on investor motivations and behaviors. Building on this literature, we Journal of Business Vol. 16, No. 1, First Semester 2025 / Albort-Morant, Berenguer, Sanchís-Pedregosa & Moreno-Moreno 158 aim to fill the gap by examining investors’ choices in P2B lending contexts. Our main goal is to understand the motivations and criteria of investors so as to give platforms insight into the expectations of funders and help them make better investment decisions through awareness of the factors they should consider. To this end, we focus on P2B lending, which is a type of P2P lending where the borrower is a company. P2B lending has received far less attention in previous studies even though it has important differences with P2P, and it is a very important industry (Pierrakis, 2019; Sanchís-Pedregosa et al., 2020). It is important to note that while economic returns are a central motivation for investors in P2P lending, diversification, which also contributes to economic returns, plays a significant role in mitigating risk and enhancing investment portfolios. Moreno-Moreno et al. (2019) showed that P2B lending investors tend to seek projects with greater risk in exchange for higher profitability, but this is not true in all cases. This could be explained by the fact that P2B lending makes it possible to invest small amounts of money in different projects, resulting in a diversification strategy capable of tolerating higher levels of risk. This should be the case for experienced investors who would take greater risks and create a more diversified loan investment portfolio, but not for more novice investors. Therefore, this study is confirmatory in nature, as it aims to verify existing knowledge about investor behavior in a new context, focusing specifically on investor experience and investment intensity in Spanish private crowdlending. Our research question asks: Does investor experience influence the volume of loans financed and the level of risk taken in their investment portfolio? In other words, we examine the relationship between investor experience, investment intensity, and the level of risk of the loans. Through this line of enquiry we seek to provide useful information to P2B lending companies, allowing them to corroborate whether their P2B lending projects are successful based on the features offered in their loans. Specifically, we analyze loans offered by the Spanish P2B lending platform MytripleA, which was founded in 2013 to create a marketplace where companies and freelancers can obtain financing directly from private investors who obtain a return in exchange. To date, MytripleA has accumulated a brokerage volume of more than 140,000,000 euros. The remainder of this paper is set out as follows. The second section establishes the theoretical framework of this research and presents the hypotheses and research model. The third section explains the methodology. The fourth section describes the statistical method and the main results. The last section summarizes the discussion and conclusions. 159 The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study 2. Theoretical Background The existence of adverse selection in microfinance is a central focus of research because the long-term success of these platforms depends on lenders’ willingness to place bids continuously when requests are made by risky borrowers in the online environment (Weiss et al. 2010). Information asymmetries in the financial market are well documented (Sufi 2007), but the information asymmetry between a borrower and potential lenders in the P2P lending market is even more acute. Unlike traditional financial markets that are largely intermediated by experts—including venture capital (VC), angel investors, and financial institutions—that provide not only the resources/capital but also their expertise in evaluating, monitoring, and managing risk, online crowdfunding markets enable startup ventures and entrepreneurs to bypass these financial intermediaries and seek funds directly from the crowd. The diverse nature and quality of borrowers, the lack of established intermediaries, the participation of the crowd, and the arms-length approach to investing all exacerbate the issues of information asymmetry in online crowdfunding markets. (Kim & Viswatan, 2019). In contrast to traditional investment channels, P2P platforms are open to almost everyone with an internet connection (Bruton et al., 2015). Therefore, as it is the investors who directly decide which projects to finance, it seems clear that investor experience could play a key role in P2P lending. In this sense, Puro et al. (2011) have presented evidence about bidder learning. The time to when a loan is funded has become shorter and the dispersion of interest rates has increased. These developments indicate that bidders have improved confidence in evaluating potential borrowers. Unfortunately, there is little existing literature focusing on the role of investor experience in P2P finance, and most of the few papers published are based on equity crowdfunding (Cicchiello et al., 2020; Goethner et al., 2020). In this context, investor experience plays a key role in preventing lender selection mistakes. Investors with less expertise in risk management usually overestimate the risk of loan non-payment (Yum et al., 2012). Moreover, most collective or less sophisticated investors may have less experience assessing the real value of business ideas than professional investors (Goethner et al., 2020). Hence, each project’s final risk assessment is left to the individual lenders, who may or may not have experience in risk management (Yum et al., 2012). Along these lines, Li et al (2021) noted that in the Chinese online P2P lending market, which has serious information asymmetries, investors learn from their experience to reduce adverse Journal of Business Vol. 16, No. 1, First Semester 2025 / Albort-Morant, Berenguer, Sanchís-Pedregosa & Moreno-Moreno 160 selection in the market. Additionally, Seru et al. (2010) pointed out that individual investors do not initially know their investment ability, but they obtain information about their performance through their experience. So, for these scholars, investors who perform better are those who continue to operate through the platform over time. To manage this risk, Cicchiello et al. (2020) proposed the need to submit registered investors to a suitability assessment to ascertain whether they possess appropriate experience, knowledge, and a financial situation that will allow them to understand the risks they are taking. Therefore, it is assumed that previous experiences influence the investor’s financial strategy (Chen et al., 2020). For Germany’s largest equity crowdfunding portal, Goether et al. (2021) examined how the Small Investors Behaviour Act (SIBA) has affected investor’s behaviour. Their results show that since the new law became binding, sophisticated investors have invested less on average while casual investors invest more. Nowadays, in a low returns scenario, private investors are joining P2P lending platforms in search of higher returns. Moreno-Moreno et al. (2019), using data from 243 P2B lending campaigns obtained through the October. eu platform, showed that P2B lending investors seek projects with a greater risk in exchange for higher profitability. This has been aided by the fact that, as we have noted, P2B lending enables the investment of small sums across various projects, making it a diversification strategy that can tolerate higher risk levels. This should be the case for experienced investors who would take more risk and create a more diversified loan investment portfolio, but not for more novice investors. Therefore, investor experience is of great interest when seeking to understand what leads them to choose certain projects. Drawing on these ideas, we consider that as investors gain experience, they take more risk and create a more diversified loan investment portfolio. Therefore, we will test the following hypotheses for investors: H1 (+): Investor experience positively influences the decision to increase the number of projects funded. H2 (+): Investor experience positively influences the decision to invest in projects with higher levels of risk. In general, level of risk is one of the most important characteristics analyzed by investors prior to deciding which projects to support (Hoegen et al., 2018). In P2P finance, lenders decide to use the credit risk analysis provided by the platform. This risk analysis is based on verified information related to each borrower and project. To control the quality of the borrowers, platforms apply various control measures, such as 161 The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study credit ratings, credit models, or a careful review of lending applications (Hernandez et al., 2015). It is important to note that in the event of fraud the credibility of the platform is at stake. However, platforms are just a marketplace that allows lenders and borrowers to connect with each other (Belleflamme et al., 2014). Therefore, P2P lending entails a risk for lenders in terms of distinguishing trustworthy borrowers and selecting the right lending intermediary (Chen et al., 2014). Furthermore, investors seldom have any influence on their investment once it is made. Therefore, it is necessary to evaluate the exact structure of P2P lending contracts (Winterberg 2020). Lenders often look at a borrower’s fair and reliable financial performance record as it clearly shows an ability to pay and flags the risk of non-performance (Cai et al., 2016; Greiner & Wang, 2010; Slimane Rousseau, 2020). This generates confidence in the borrower and affects the lender’s decisions. According to the literature, financial performance is not the only criteria to consider. Lenders’ decisions are also based on other risk indicators, such as the interest rate, loan duration, and its amount (Bodie et al., 2012; Cai et al., 2016). Nevertheless, further indicators should also be considered, such as loan return, the project’s rating assessment, the lending rate, and the default rate (Dietrich & Wernli, 2020). The interest rate represents the potential financial return for the loan, the monetary cost that the borrower will pay, and the possibilities of non-repayment (Freedman & Jin, 2017; Pope & Sydnor, 2011). The interest rates of the loans offered on P2B lending platforms bear many similarities with traditional loans (Keliuotytė-Staniulėnienė & Kukarėnaitė, 2020). However, they offer higher investment returns, which means that such financing involves risks. So, the higher the interest rate, the higher the risk of default by the borrower. According to Gjesvisk and Hestmann (2018), “a higher interest rate could therefore be interpreted as a compensation for the increased risk facing investors” (p. 11). This indicator measures investors’ rationality concerning their expected risk–performance commitment under conditions of imperfect information (Dietrich & Wernli, 2020). This indicator would also show the economic performance of P2B lending projects. Moreover, the amount requested by borrowers and the duration of the loan are risk indicators that could affect the success of P2B lending projects. On the one hand, with a significant amount requested there is a greater risk of not obtaining the necessary funds to finance the project and of the P2B lending campaign not being successful (Yum et al., 2012). The effect of the loan duration indicator, on the other hand, is not apparent. Like Feng et al. (2015), some authors consider that there is no significant rela- Journal of Business Vol. 16, No. 1, First Semester 2025 / Albort-Morant, Berenguer, Sanchís-Pedregosa & Moreno-Moreno 162 tionship between the duration of the loan and the success of the financing. Nevertheless, investors are more concerned about loan returns. They prefer shorter loan periods because they offer greater liquidity (Moreno-Moreno et al., 2018). Wang and Greiner (2010) and Kafft (2008) noted that many lenders who invested in funds through the P2B lending platform Prosper. com could not achieve their expected returns due to the high default rate from low-income borrowers. Therefore, the risk will remain latent until the investor recovers their initial investment. The loan return will also depend on the borrower’s characteristics, sector, and time to implement and comply with the funded P2B lending project. Another risk indicator to consider is the borrower’s credit rating or credit score. The credit rating establishes the risk involved in investing in the debt of P2B lending projects. Most P2B lending companies establish their equivalents to the credit ratings provided by independent rating agencies (TransUnion, Experian, etc.). The credit rating letter assigned is widely recognized and easy to understand (Gjesvik & Hestmann, 2018). Most investors base their investment strategy on these financial credit ratings. Hence, they try to lend money to borrowers with a higher rating because their creditworthiness will be premium. According to Altman and Rotblut (2016), 60% of P2B lending borrowers are characterized as having “investment grade” (above BBB), while 40% are classified as having “high yield” (below BBB) (Altman & Rotblut, 2016). One way to compensate for the risk taken is to follow a diversification strategy; that is, to invest in different projects. According to Moreno-Moreno et al., (2020) and Altman and Rotblut (2016), P2B lending investors look for higher returns so it would be natural to expect them to diversify (Markowitz 1952). Thus, in connection to the degree of risk, the following hypothesis will be tested: H3(+): The degree of risk positively influences the decision to increase the intensity of investment in projects. In general, P2B lenders are seeking higher returns which imply a higher risk. To offset this risk, they invest in different projects in order to diversify the risk. Nevertheless, investors have different levels of experience in crowdfunding, which might affect their decisions. To test for the degree of risk and its relationship with experience and intensity, we propose the following research model (Figure 1): 163 The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study Figure 1 Model and hypotheses Degree of Risk H2(+) H1(+) H3(+) Investor Experience Investment Intensity Investor Age 3. Methodology Data collection, sample, and measures Our empirical analysis was based on a secondary database of investors in lending projects. The data comprises 1,340 private investors registered on the Spanish P2B lending platform MytripleA, participating in 798 loans from 2015 to 2019. The objective of this company is to offer finance to SMEs and the self-employed while seeking to ensure that private investors obtain a proper return for their money. According to the information on its website (https://www.mytriplea.com), MytripleA offers returns to investors that range from 7%, for riskier projects, to a 2% return for guaranteed projects. In our study, we have included all types of projects. As this is a secondary database and we do not conduct an empirical study using survey methodology, the items are developed based on how the information is presented by the platform. So, the variables used to test the hypotheses are composed of the following indicators: time investing, loan return, rating, average interest rate, and number of loans. Therefore, the constructs employed in this study are investor experience, degree of risk, and investment intensity. • Investor Experience: We have measured this variable directly from the platform by considering the number of years since the investor created their account. We use a similar measure as the one applied by Li et al. (2021), who analyzed the relationship between investor performance and experience. The study proxies for investor experience using account age and the cumulative number of bids. In our study, we have renamed these two variables as Time investing (investor experience using account age) and Number of loans (number of bids). Journal of Business Vol. 16, No. 1, First Semester 2025 / Albort-Morant, Berenguer, Sanchís-Pedregosa & Moreno-Moreno 170 Figure 3 IPMA Map: Indicators Level Investment Intensity -10123456789 Importance-Performance Map Total Effects 100 90 80 70 60 50 40 30 20 10 0 AverageInterestRate InvestorAge LoanReturn Rating TimeInvesting 5. Discussion and conclusion The main objective of this paper is to shed light on the behavior, if any, of P2B lenders or funders. Characterizing investors is not always possible since they have different profiles. Nevertheless, they all share the same economic motivation (Martínez-Climent et al. 2020). For this reason, exploring the relationship between economic risks and investors’ decision-making is useful in aiding our understanding of the success of some projects over others. Low entry barriers stimulate the entrance of amateur private investors seeking higher returns for their savings. Lending investors directly decide which projects to finance and, unlike other modes of crowdfunding, they mainly focus their decisions on financial risks (Hoegen et al. 2018). This study is confirmatory in nature, as it aims to validate and extend previous findings on investor behavior in P2P and equity crowdfunding to the specific context of P2B crowdlending in Spain. By focusing on the relationship between investor experience, risk, and investment intensity, it contributes to our understanding of investor behavior in somewhat underexplored setting. As P2B investors gain experience, their decisions may change. With this study, we set out to answer the following research questions: (a) How does investor experience influence investment intensity in the context of P2B lending platforms? (b) Do investors who have been investing in P2B lending for longer decide to take more significant risks? (c) Do P2B lending 171 The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study investors take more significant risks when investing? (d) Does the degree of risk affect the number of projects that investors decide to finance? In order to answer Questions a) and b), we proposed Hypotheses 1 and 2. We tested whether investor experience positively influences the decision to increase the degree of investment intensity and engage with projects that entail a higher risk level. Our results show that both hypotheses are fulfilled. This result is consistent with the existing literature and previous empirical evidence (Moreno-Moreno et al., 2019). However, in our study we go one step further and conclude that as investors gain experience, they invest in more projects and select those with more risk. This extends the theory by providing evidence that experienced investors not only diversify their portfolios but also consciously engage with higher-risk investments as part of their strategy. This diversification and risk-taking behavior aligns with established investment principles but is now confirmed in the P2B context, contributing to the literature on how experience shapes financial decision-making in alternative finance. This is a consistent result, since investors, as they gain experience, know that to reduce risks, a diversification strategy must be followed. Our results coincide with those of Li et al. (2021) who, for the Chinese online P2P lending market, found that investors can rationally learn from their experience. They observed that investors improved their performance as they gained experience. Furthermore, Pierrakis (2019), using a survey conducted with 630 investors from the Funding Circle Platform, found that the expectation of making a financial return is the main motivation behind an individual’s decision to lend money to companies. Regarding Questions c) and d), our results also confirm a negative relationship between the degree of risk taken by investors and investment intensity, although this relationship is not as strong as in the previous hypotheses. As they invest in projects with greater risk, they tend to diversify by investing in more projects. This diversification strategy seems to apply to investors with more experience (those that take more risks). This effect is also reinforced by Hypothesis 3, which holds that the degree of risk has a moderating effect between investor experience and investment intensity. This insight adds nuance to existing theories on risk-taking, suggesting that experience not only influences the volume of investments but also the strategic diversification of risks across multiple projects. Future studies could explore additional theoretical frameworks, such as behavioral finance or the theory of bounded rationality, to better understand how cognitive biases or decision heuristics might further shape the experience-risk-intensity dynamic. Journal of Business Vol. 16, No. 1, First Semester 2025 / Albort-Morant, Berenguer, Sanchís-Pedregosa & Moreno-Moreno 172 The findings of this study have important practical implications for platform operators in the P2B lending space. By understanding the varying behavior of investors based on their experience level, platform operators can tailor their services to different investor segments. For example, more experienced investors, who tend to take higher risks and diversify their portfolios across multiple projects, could be offered targeted investment opportunities that match their risk appetite. Platforms could develop specific risk-based filters or personalized recommendations to help these investors easily identify high-risk, high-reward projects. Conversely, less experienced investors, who are more cautious and tend to avoid risk, could benefit from educational resources, tutorials, or “safer” investment options that focus on guaranteed returns or lower-risk projects. By segmenting investors and offering tailored services, platform operators can improve user satisfaction, retain diverse investor groups, and optimize the overall performance of their marketplace. Nonetheless, this study is not without limitations. One key limitation lies in the fact that the data is specific to the Spanish market and drawn from a single platform, MyTripleA. Therefore, these findings may not be generalizable to other geographic or regulatory contexts. Additionally, while we have established a link between experience, risk, and investment intensity, further research is needed to explore under what conditions these relationships might differ. For instance, in markets with stricter lending regulations or in periods of economic instability, the experience–risk–intensity relationship might not follow the same pattern. Future research could explore these conditions, as well as examining how factors like investor education, access to information, or platform characteristics could modify these dynamics. This study may be helpful to platforms and borrowers. Understanding investors’ preferences stands to help borrowers design better projects to make them more attractive. It is also of interest to investors, who will make better investment decisions by being aware of the factors they should consider. Furthermore, it will provide new perspectives on crowdfunding regulations, helping to protect investors from rash and potentially costly choices. In conclusion, this confirmatory study not only verifies prior research in a new context but also offers a deeper understanding of the interplay between investor experience, risk-taking, and investment intensity in P2B lending. This contribution is essential for both academic theory and practical application, offering insights that can inform future studies and support the ongoing evolution of the crowdlending industry. 173 The Influence of Investor Experience on Investment Intensity and Risk Assumption in Crowdlending: An Empirical Study Abbreviations P2P: Peer to Peer P2B: Peer to Business PLS: Partial Least Square References Albort-Morant, G., Sanchís-Pedregosa, C., & Paredes Paredes, J. R. (2022). Online banking adoption in Spanish cities and towns. Finding differences through TAM application. 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