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Misreporting and risk of loan default: evidence from an online lending platform affiliated with a Rural Commercial Bank in China

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  • Diao, Anqi
  • Chen, Shou
  • Huang, Yuxuan

Abstract

Theoretically, misreporting is associated with adverse loan outcomes. We utilize loan data from an online lending platform affiliated with a rural commercial bank in China during 2021–2024 in combination with government-certified data to examine the occurrences of misreporting. Our results indicate that income misreporting exacerbates the risk of default. The bank mitigates the risk associated with misreporting by constraining loan size. These findings reveal that a strategy based on relational information effectively mitigates the risk of misreporting, whereas a strategy based on risk preference has a limited effect. Thus, our findings elucidate the effect of misreporting on loan default among borrowers located in lower-tier cities and rural regions which help banks enhance the quality of credit risk management.

Suggested Citation

  • Diao, Anqi & Chen, Shou & Huang, Yuxuan, 2026. "Misreporting and risk of loan default: evidence from an online lending platform affiliated with a Rural Commercial Bank in China," Finance Research Letters, Elsevier, vol. 88(C).
    • Handle: RePEc:eee:finlet:v:88:y:2026:i:c:s1544612325023712
    DOI: 10.1016/j.frl.2025.109122
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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R51 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Finance in Urban and Rural Economies

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