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Individual Investors in the SME Micro Bond Market

Project Title: Individual Investors in the SME Micro Bond Market

PI: Professor Raghavendra Rau

Project Summary: Since 2008, banks in the EU have significantly reduced lendingcapacity, especially decreasing lending to small and medium
enterprises (SMEs). Firms, especially in Germany, the UK and Italy are
trying to reduce reliance on bank funding by issuing listed and unlisted
‘micro’ bonds directly to consumers. However, standard credit
rationing models (Stiglitz and Weiss, 1981, AER) argue that high
coupons alone will be insufficient to attract investors in the presence
of asymmetric information. Successful issuers therefore need to
establish a trust‐producing relationship with their investors prior to
issuance. There is no prior research on the behavior of individuals
investing in the debt of SMEs, though there is a significant literature on
the decision biases of individual equity investors in large companies
attributed to proximity and the effect heuristic (Ivkovic & Weisbenner,
2007; Grinblatt & Keloharju; Hong, Hubik et al, 2008; Seasholes & Zhu,
2010). In this project, we would like to identify the evolution of local
bias in the investment patterns of local investors in debt of SMEs in

Project Period: 1.10.13-1.10.14

Extended till: 01.10.2015

End of Award Report

Working Paper

Project Update - July 2016

Project Update - March 2016

Project Update - July 2015

Project Update - April 2015

Project Update - April 2014

Project Update - July 2014

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