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How do lenders evaluate borrowers in peer-to-peer lending in China?

Author

Listed:
  • Chen, Shiyi
  • Gu, Yan
  • Liu, Qingfu
  • Tse, Yiuman

Abstract

We examine how lenders incorporate borrowers’ demographic characteristics and behaviors into their decisions in peer-to-peer (P2P) lending in China. Using the Renrendai online platform from 2013 to 2015, we find that the P2P market correctly uses the education level of borrowers (but not age, gender, and marital status) to evaluate their creditworthiness and anticipated loan performance. Borrowers with higher education levels have greater success in attracting funding and a lower probability of default, and those who extend funding to them can expect to receive higher returns. Younger female borrowers are less likely to be funded, even though they have a lower probability of default. Some borrowers may use more positive emotional appeals to persuade lenders to extend funding; however, lenders respond adversely to such appeals.

Suggested Citation

  • Chen, Shiyi & Gu, Yan & Liu, Qingfu & Tse, Yiuman, 2020. "How do lenders evaluate borrowers in peer-to-peer lending in China?," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 651-662.
    • Handle: RePEc:eee:reveco:v:69:y:2020:i:c:p:651-662
    DOI: 10.1016/j.iref.2020.06.038
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    Cited by:

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    2. Liu, Yi & Yang, Menglong & Wang, Yudong & Li, Yongshan & Xiong, Tiancheng & Li, Anzhe, 2022. "Applying machine learning algorithms to predict default probability in the online credit market: Evidence from China," International Review of Financial Analysis, Elsevier, vol. 79(C).
    3. Natnara Chulawate & Supaporn Kiattisin, 2023. "Success Factors Influencing Peer-to-Peer Lending to Support Financial Innovation," Sustainability, MDPI, vol. 15(5), pages 1-16, February.
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    5. Sha, Yezhou, 2022. "Rating manipulation and creditworthiness for platform economy: Evidence from peer-to-peer lending," International Review of Financial Analysis, Elsevier, vol. 84(C).
    6. Wang, Shaoda & Ye, Dezhu & Liao, Junyun, 2024. "Politeness matters: The role of polite languages in online peer-to-peer lending," Journal of Business Research, Elsevier, vol. 171(C).

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