A Cross-Border Comparison of Crowdlending in Norway and Sweden : Regulations' impact on credit quality and credit risk premiums

Abstract

Crowdfunding has experienced enormous growth in recent years, and the form of crowdfunding that has grown most is crowdlending. A key reason for this growth is that crowdlending has given small and medium enterprises easier access to capital. There are currently no common regulations for crowdlending in Europe, and the regulations for crowdlending in Norway and Sweden are different. However, the European Union has recently passed a common regulation which will make regulations more equal between the countries in the future. This thesis investigates whether there are differences in credit quality among companies that seek financing through crowdlending in Norway and Sweden. It also investigates if there are differences in credit risk premiums cross-border. The results from these analyses could provide insight into what will happen after the implementation of the common EU regulations. To analyze this, we construct a dataset containing information about companies that have received funding through Norwegian and Swedish crowdlending platforms from 2017 through 2020. A range of OLS regression models are estimated to determine the relationship between credit quality and country of issuance and between credit risk premium and country of issuance. The empirical results demonstrate that the credit quality of companies receiving funding through Swedish crowdlending platforms has been significantly higher than for their Norwegian counterparts. They further show that credit risk premiums for loans issued through Swedish crowdlending platforms have been significantly higher than for loans issued through Norwegian platforms. We argue that the main reason explaining the relatively poorer credit quality in Norway than in Sweden is the current regulations. Specifically, we point to the peculiar Norwegian investment limit of NOK 1 million per year. Further, we argue that the relatively lower credit risk premiums in Norway constitutes an anomaly due to the same reason.