Fabio et al. (2018) study whether and to what extent peer-to-peer (P2P) credit helps circumvent loan-to-value (LTV) caps, a key macroprudential tool to contain household leverage. They exploit the tightening of mortgage LTV caps in a number of cities in China in 2013 as the testing ground, in a difference-in-differences setting, and using data from Renrendai.com, a leading Chinese P2P platform. P2P loans increase at the cities affected by the LTV cap tightening relative to the control cities, consistent with borrowers tapping P2P credit to circumvent the regulation. Continue reading
Using a novel dataset from Tomorrow and other limited liability firms in Sweden, Li (2016) investigates what motivates firms to seek online crowdfunding. Firms that borrow from “the crowd” are usually small private businesses that are dependent on bank financing. The paper explored the determinants of firms to borrow from the crowdlending market by comparing the ex-ante characteristics of those firms with other private limited liability firms that borrow from banks.
Why do retail consumers look for P2P financial intermediation? Are internet-based peer-to-peer (P2P) loans a substitute for or a complement to bank loans? de Roure et al. (2016) answer these questions by comparing P2P lending with the nonconstruction consumer credit market in Germany. Continue reading
Regulators around the world have made it a top policy priority to respond to the exponential growth of financial technology (or “Fintech”) in the post-Crisis era. Mapping traditional regulatory strategies to new technological ecosystems has, however, proven conceptually difficult. Part of the challenge lies in the inherent tradeoffs involved in the complex work of supervising technologies that can both help and hurt consumers and market participants. Problems also arise from the common assumption that today’s Fintech is a mere continuation of the story of innovation that has shaped finance for centuries.
Julapa Jagtiani and Catharine Lemieux investigated the advantages/disadvantages of loans made by a large Fintech lender and similar loans that were originated through traditional banking channels. Banks have been concerned about the uneven playing field because Fintech lenders are not subject to the same rigorous oversight. There have also been concerns about the use of alternative data sources by Fintech lenders and the impact on financial inclusion. Continue reading
Coakley et al. (2017) investigate the role of P2P (peer-to-peer) debt in the financing decisions of 1,001 unique firms that were financed by Funding Circle from 2010 to 2015. The firms are small (10-49 employees) with a median age of 11 years, virtually all are privately held, and two thirds of the debt raised has a maturity of 5 years.
The role of textual data has been widely explored in the finance area. The measures include readability, sentiment and similarly etc. In the online crowdfunding market, Gao and Lin examine whether linguistic styles of texts can help mitigate issues of information asymmetry, and more importantly, whether investors can “correctly” interpret the economic value of texts. Continue reading
Do P2P lenders smarter than credit agency? Iyer et al. (2016) examine the performance of new online lending markets that rely on non-expert individuals to screen their peers’ creditworthiness. The P2P lenders predict an individual’s likelihood of defaulting on a loan with 45% greater accuracy than the borrower’s exact credit score (unobserved by the lenders, who only see a credit category). Continue reading
Roure et al. (2016) find that P2P lending is substituting the banking sector for high-risk consumer loans since banks are unwilling or unable to supply this slice of the market. P2P lending platforms advertise that they provide access to credit to those that are underbanked, and that they lower the cost of borrowing through refinancing, and even enhance one’s credit scores. Is it true? Whether borrowers can obtain benefits for future financing? How do P2P loans affect credit score of borrowers compared with non-P2P borrowers? Continue reading
Herding behaviour-which originates from the phenomenon of animals moving and foraging in a group-has been widely explored in financial markets, especially stock markets. In previous post, we reviewed a rational herding paper in US P2P market. Compared to traditional lending institutions, lenders in P2P lending markets are retail investors who are difficult to acquire sufficient information for their decisions. Zhang and Liu (2012) find that well-funded loan requests tend to attract more funding, lenders can review creditworthiness of borrowers by observing peer lending decisions and use publicly observable borrower characteristics to moderate their inferences.