Finance

- October 2021
- Case
The Big Blue: Starting a Real Estate Firm

By: Boris Vallee and Nikodem Szumilo
- October 2021
- Case
The Big Blue: Starting a Real Estate Firm

By: Boris Vallee and Nikodem Szumilo
- October 2021
- Case
DRSi

By: Richard S. Ruback and Royce Yudkoff
- October 2021
- Case
DRSi

By: Richard S. Ruback and Royce Yudkoff
- 2021
- Working Paper
Invisible Primes: Fintech Lending with Alternative Data

By: Marco Di Maggio, Dimuthu Ratnadiwakara and Don Carmichael

We exploit anonymized administrative data provided by a major fintech platform to investigate whether using alternative data to assess borrowers’ creditworthiness results in broader credit access. Comparing actual outcomes of the fintech platform’s model to counterfactual outcomes based on a “traditional model” used for regulatory reporting purposes, we find that the latter would result in a 60% higher probability of being rejected and higher interest rates for those approved. The borrowers most positively affected are the “invisible primes”—borrowers with low credit scores and short credit histories, but also a low propensity to default. We show that funding loans to these borrowers leads to better economic outcomes for the borrowers and higher returns for the fintech platform.
- 2021
- Working Paper
Invisible Primes: Fintech Lending with Alternative Data

By: Marco Di Maggio, Dimuthu Ratnadiwakara and Don Carmichael

We exploit anonymized administrative data provided by a major fintech platform to investigate whether using alternative data to assess borrowers’ creditworthiness results in broader credit access. Comparing actual outcomes of the fintech platform’s model to counterfactual outcomes based on a “traditional model” used for regulatory reporting...

About the Unit

Our strategy is to assemble and nurture a faculty whose interests and skills complement each other, and who work well together:

a) to produce a broad range of finance-related research that is published in top-tier scientific and practitioner journals, and that addresses issues of present and future importance to managers (including regulators and policy makers);

b) to develop highly-relevant and intellectually rigorous MBA and executive education courses; and

c) to mentor future academics through the Business Economics doctoral program.

Our applied focus and access to business organizations are major advantages which are reinforced by our students and our case-based approach. We have a faculty with broad expertise, and we have resources, field contacts, and institutional support, all of which we can leverage to do richer work and be more productive than we could at other institutions.

Recent Publications

The Big Blue: Starting a Real Estate Firm

By: Boris Vallee and Nikodem Szumilo

October 2021 |
Case |
Faculty Research

Citation

Educators

DRSi

By: Richard S. Ruback and Royce Yudkoff

October 2021 |
Case |
Faculty Research

Citation

Educators

Invisible Primes: Fintech Lending with Alternative Data

By: Marco Di Maggio, Dimuthu Ratnadiwakara and Don Carmichael

2021 |
Working Paper |
Faculty Research

We exploit anonymized administrative data provided by a major fintech platform to investigate whether using alternative data to assess borrowers’ creditworthiness results in broader credit access. Comparing actual outcomes of the fintech platform’s model to counterfactual outcomes based on a “traditional model” used for regulatory reporting purposes, we find that the latter would result in a 60% higher probability of being rejected and higher interest rates for those approved. The borrowers most positively affected are the “invisible primes”—borrowers with low credit scores and short credit histories, but also a low propensity to default. We show that funding loans to these borrowers leads to better economic outcomes for the borrowers and higher returns for the fintech platform.

Keywords: Fintech Lending; Alternative Data; Machine Learning; Algorithm Bias; Finance; Technology; Financing and Loans; Data and Data Sets; Credit

Citation

Read Now

And the Children Shall Lead: Gender Diversity and Performance in Venture Capital

By: Paul A. Gompers and Sophie Calder-Wang

October 2021 |
Article |
Journal of Financial Economics

With an overall lack of gender and ethnic diversity in the innovation sector documented in Gompers and Wang (2017), we ask the natural next question: Does increased diversity lead to better firm performances? In this paper, we attempt to answer this question using a unique dataset of the gender of venture capital partners’ children. First, we find strong evidence that parenting more daughters leads to an increased propensity to hire female partners by venture capital firms. Second, using an instrumental variable set-up, we also show that improved gender diversity, induced by parenting more daughters, improves deal and fund performances. These effects concentrate overwhelmingly on the daughters of senior partners than junior partners. Taken together, our findings have profound implications on how the capital markets could function better with improved diversity.

Keywords: Venture Capital; Diversity; Gender; Performance Improvement; Capital Markets

Citation

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Fintech Borrowers: Lax Screening or Cream-Skimming?

By: Marco Di Maggio and Vincent Yao

October 2021 |
Article |
Review of Financial Studies

Personal credit is the fastest-growing segment of the consumer credit market, mainly driven by fintech lenders' staggering expansion. We study this market using a unique individual-level data, which covers most of the top fintech and traditional lenders, and provides detailed information about borrowers' credit histories. We show that fintech borrowers are significantly more likely to default than neighbor individuals with the same characteristics borrowing from traditional financial institutions. Fintech borrowers are more likely to experience only a short-lived reduction in the cost of credit, because their total indebtedness increases more than non-fintech borrowers a few months after loan origination. However, we show that fintech lenders' pricing strategy is likely to take this into account.

Keywords: Fintech; Lending; Consumer Finance; Credit History; Self-control; Present Bias; Financing and Loans; Personal Finance; Credit; Behavior

Citation

Find at Harvard

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Changing Gambling Behavior through Experiential Learning

By: Shawn A. Cole, Martin Abel and Bilal Zia

October 2021 |
Article |
World Bank Economic Review

This paper tests experiential learning as a debiasing tool to reduce gambling in South Africa, through a randomized field experiment. The study implements a simple, interactive game that simulates the odds of winning the national lottery through dice rolling. Participants first roll one die until they obtain a six, followed by two dice until they roll 2 sixes. They are then informed that the probability of winning the lottery jackpot is equivalent to rolling all sixes with nine dice. The results show that individuals who need many attempts to roll 2 sixes play the lottery significantly less than the control group, while those who need fewer attempts adopt the opposite behavior. These findings provide practical guidance for designing interventions to give individuals brief experiences that correct biases in their beliefs.

Keywords: Debiasing; Experiential Learning; Behavioral Economics; Financial Education; Learning; Games, Gaming, and Gambling; Behavior; Decision Making

Citation

Find at Harvard

Read Now