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The impact of public corruption on marketplace lending outcomes

Author

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  • Kaakeh, Abdulkader
  • Parker, Simon C.

Abstract

This study investigates the impact of public corruption on lending outcomes in the context of Marketplace Lending (MPL) platforms such as LendingClub. Utilizing data on over one million loans and state-level corruption metrics from the US Department of Justice, this research uniquely examines within-country variations in corruption. Our findings reveal a significant correlation between public corruption and loan defaults, with a 3 % increase in default rates per unit increase in corruption. Interest rates also rise by 9 basis points under similar conditions. These effects persist across various model specifications and robustness checks. We demonstrate that trust mediates the relationship between corruption and loan defaults, and that neither governance nor enforcement explains the observed impacts. This study contributes to the literature by linking corruption to individual financial behavior in fintech lending, highlighting the crucial role of trust in financial transactions.

Suggested Citation

  • Kaakeh, Abdulkader & Parker, Simon C., 2025. "The impact of public corruption on marketplace lending outcomes," Journal of Banking & Finance, Elsevier, vol. 177(C).
    • Handle: RePEc:eee:jbfina:v:177:y:2025:i:c:s0378426625000925
    DOI: 10.1016/j.jbankfin.2025.107472
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    More about this item

    Keywords

    Marketplace lending; Public corruption; Default; Trust; Pricing; Regulatory governance; Contract enforcement;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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