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What does peer-to-peer lending evidence say about the Risk-Taking Channel of monetary policy?

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  • Huang, Yiping
  • Li, Xiang
  • Wang, Chu

Abstract

This paper uses loan application-level data from a peer-to-peer lending platform to study the risk-taking channel of monetary policy. By employing a direct ex-ante measure of risk-taking and estimating the simultaneous equations of loan approval and loan amount, we provide evidence of monetary policy's impact on a nonbank financial institution's risk-taking. We find that the search-for-yield is the main driving force of the risk-taking effect, while we do not observe consistent findings of risk-shifting from the liquidity change. Monetary policy easing is associated with a higher probability of granting loans to risky borrowers and greater riskiness of credit allocation. However, these changes do not necessarily relate to a larger loan amount on average.

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  • Huang, Yiping & Li, Xiang & Wang, Chu, 2021. "What does peer-to-peer lending evidence say about the Risk-Taking Channel of monetary policy?," Journal of Corporate Finance, Elsevier, vol. 66(C).
  • Handle: RePEc:eee:corfin:v:66:y:2021:i:c:s0929119920302893
    DOI: 10.1016/j.jcorpfin.2020.101845
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    Cited by:

    1. Funke, Michael & Li, Xiang & Tsang, Andrew, 2019. "Monetary policy shocks and peer-to-peer lending in China," BOFIT Discussion Papers 23/2019, Bank of Finland, Institute for Economies in Transition.
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    3. Caglayan, Mustafa & Talavera, Oleksandr & Xiong, Lin, 2022. "Female small business owners in China: Discouraged, not discriminated," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 80(C).
    4. Farag, Hisham & Johan, Sofia, 2021. "How alternative finance informs central themes in corporate finance," Journal of Corporate Finance, Elsevier, vol. 67(C).

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    More about this item

    Keywords

    Monetary policy; Risk-taking; Nonbank financial institution; Peer-to-peer lending; Search-for-yield; Risk-shifting;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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