IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v14y2022i21p14329-d961040.html
   My bibliography  Save this article

Research on SMEs’ Reputation Mechanism and Default Risk Based on Investors’ Financial Participation

Author

Listed:
  • Xin Li

    (School of Banking and Finance, University of International Business and Economics, No. 10 Huixin East Street, Chaoyang District, Beijing 100029, China)

  • Xiujuan Tian

    (School of Banking and Finance, University of International Business and Economics, No. 10 Huixin East Street, Chaoyang District, Beijing 100029, China)

Abstract

Small and micro enterprises (SMEs) play a significant role in the market economy. While online lending has brought financial inclusion for SMEs’ borrowers, it has also increased the default risk, which restricts the normative development of online lending. To explore the impact of the reputation mechanism on borrowers’ default behavior, this paper provides a theoretical model of asymmetric information dynamic games under the online lending mechanism and an empirical study, which takes the number of bidders that reflects the investors’ participation as a proxy variable for the reputation effect factor. The theoretical model showed the borrowers’ default behavior is effectively restrained by the increase in the reputation effect factor in the reputation mechanism, and the empirical study found that an increase in the number of bidders can significantly reduce the risk of borrowers’ default, which verifies the conclusion of the theoretical model.

Suggested Citation

  • Xin Li & Xiujuan Tian, 2022. "Research on SMEs’ Reputation Mechanism and Default Risk Based on Investors’ Financial Participation," Sustainability, MDPI, vol. 14(21), pages 1-17, November.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:21:p:14329-:d:961040
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/14/21/14329/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/14/21/14329/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Daniel Friedman, 1998. "On economic applications of evolutionary game theory," Journal of Evolutionary Economics, Springer, vol. 8(1), pages 15-43.
    2. Nadeem, Waqar & Juntunen, Mari & Shirazi, Farid & Hajli, Nick, 2020. "Consumers’ value co-creation in sharing economy: The role of social support, consumers’ ethical perceptions and relationship quality," Technological Forecasting and Social Change, Elsevier, vol. 151(C).
    3. Wafa Ghardallou, 2022. "Correction to: Financial System Development and Democracy: a Panel Smooth Transition Regression Approach for Developing Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(2), pages 1736-1736, June.
    4. Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
    5. Sumit Agarwal, 2010. "Distance and Private Information in Lending," The Review of Financial Studies, Society for Financial Studies, vol. 23(7), pages 2757-2788, July.
    6. Devin G. Pope & Justin R. Sydnor, 2011. "What’s in a Picture?: Evidence of Discrimination from Prosper.com," Journal of Human Resources, University of Wisconsin Press, vol. 46(1), pages 53-92.
    7. Ying Han & Guohong Chen & Elena Poh, 2018. "Effects of Informal Contracts on Innovative Cooperation among Enterprises in Industrial Clusters: An Evolutionary Game Analysis," Discrete Dynamics in Nature and Society, Hindawi, vol. 2018, pages 1-10, October.
    8. Ying Li & Jacky So & Jia Yuan, 2020. "Voluntary Verifiable Information Disclosure And Loan Funding Performance: Evidence From Paipaidai In China," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 419-441, March.
    9. Ge You & Hao Guo & Abd Alwahed Dagestani & Shuai Deng & Baogui Xin, 2021. "Evolutionary Game Analysis of Three Players on Behavioural Strategy of P2P Lending Participants: A Sustainable Operations Perspective," Complexity, Hindawi, vol. 2021, pages 1-18, August.
    10. Wafa Ghardallou, 2022. "Financial System Development and Democracy: a Panel Smooth Transition Regression Approach for Developing Countries," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 13(2), pages 1714-1735, June.
    11. Liberman, Andres, 2016. "The value of a good credit reputation: Evidence from credit card renegotiations," Journal of Financial Economics, Elsevier, vol. 120(3), pages 644-660.
    12. Alessandra Cassar & Luke Crowley & Bruce Wydick, 2007. "The effect of social capital on group loan repayment: evidence from field experiments," Economic Journal, Royal Economic Society, vol. 117(517), pages 85-106, February.
    13. Yao, Yinhong & Li, Jianping & Sun, Xiaolei, 2021. "Measuring the risk of Chinese Fintech industry: evidence from the stock index," Finance Research Letters, Elsevier, vol. 39(C).
    14. Jiaqi Yan & Wayne Yu & J. Leon Zhao, 2015. "How signaling and search costs affect information asymmetry in P2P lending: the economics of big data," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 1(1), pages 1-11, December.
    15. Ramaswamy, Venkat & Ozcan, Kerimcan, 2018. "What is co-creation? An interactional creation framework and its implications for value creation," Journal of Business Research, Elsevier, vol. 84(C), pages 196-205.
    16. Khakan Najaf & Ravichandran K. Subramaniam & Osama F. Atayah, 2022. "Understanding the implications of FinTech Peer-to-Peer (P2P) lending during the COVID-19 pandemic," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 12(1), pages 87-102, January.
    17. Green, T. Clifton & Jame, Russell, 2013. "Company name fluency, investor recognition, and firm value," Journal of Financial Economics, Elsevier, vol. 109(3), pages 813-834.
    18. Prystav, Fabian, 2016. "Personal information in peer-to-peer loan applications: Is less more?," Journal of Behavioral and Experimental Finance, Elsevier, vol. 9(C), pages 6-19.
    19. Hodula, Martin, 2022. "Does Fintech credit substitute for traditional credit? Evidence from 78 countries," Finance Research Letters, Elsevier, vol. 46(PB).
    20. Jefferson Duarte & Stephan Siegel & Lance Young, 2012. "Trust and Credit: The Role of Appearance in Peer-to-peer Lending," The Review of Financial Studies, Society for Financial Studies, vol. 25(8), pages 2455-2484.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Benjamin Käfer, 2016. "Peer-to-Peer Lending – A (Financial Stability) Risk Perspective," MAGKS Papers on Economics 201622, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. Wei Liu & Li-Qiu Xia, 2017. "An Evolutionary Behavior Forecasting Model for Online Lenders and Borrowers in Peer-to-Peer Lending," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 34(01), pages 1-14, February.
    3. Samuel Ribeiro-Navarrete & Juan Piñeiro-Chousa & M. Ángeles López-Cabarcos & Daniel Palacios-Marqués, 2022. "Crowdlending: mapping the core literature and research frontiers," Review of Managerial Science, Springer, vol. 16(8), pages 2381-2411, November.
    4. Costello, Anna M. & Down, Andrea K. & Mehta, Mihir N., 2020. "Machine + man: A field experiment on the role of discretion in augmenting AI-based lending models," Journal of Accounting and Economics, Elsevier, vol. 70(2).
    5. Bertrand, Jérémie & Burietz, Aurore, 2023. "(Loan) price and (loan officer) prejudice," Journal of Economic Behavior & Organization, Elsevier, vol. 210(C), pages 26-42.
    6. Marieke Bos & Emily Breza & Andres Liberman, 2018. "The Labor Market Effects of Credit Market Information," The Review of Financial Studies, Society for Financial Studies, vol. 31(6), pages 2005-2037.
    7. Shusen Qi & Ralph De Haas & Steven Ongena & Stefan Straetmans & Tamas Vadasz, 2017. "Move a Little Closer? Information Sharing and the Spatial Clustering of Bank Branches," Swiss Finance Institute Research Paper Series 17-74, Swiss Finance Institute, revised Jun 2023.
    8. Xueru Chen & Xiaoji Hu & Shenglin Ben, 2021. "How do reputation, structure design and FinTech ecosystem affect the net cash inflow of P2P lending platforms? Evidence from China," Electronic Commerce Research, Springer, vol. 21(4), pages 1055-1082, December.
    9. Chen, Xiao & Huang, Bihong & Ye, Dezhu, 2019. "The Gender Gap in Peer-to-Peer Lending: Evidence from the People’s Republic of China," ADBI Working Papers 977, Asian Development Bank Institute.
    10. de Roure, Calebe & Pelizzon, Loriana & Tasca, Paolo, 2016. "How does P2P lending fit into the consumer credit market?," Discussion Papers 30/2016, Deutsche Bundesbank.
    11. Li, Jiyuan & Li, Zihui & Zhang, Min, 2023. "CFOs’ facial trustworthiness and bank loan contracts," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 332-357.
    12. Teply, Petr & Polena, Michal, 2020. "Best classification algorithms in peer-to-peer lending," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    13. Carlos Madeira, 2020. "The impact of information laws on consumer credit access: evidence from Chile," Working Papers Central Bank of Chile 873, Central Bank of Chile.
    14. José María Liberti & Mitchell A. Petersen, 2018. "Information: Hard and Soft," NBER Working Papers 25075, National Bureau of Economic Research, Inc.
    15. Chen, Xiao & Huang, Bihong & Ye, Dezhu, 2020. "Gender gap in peer-to-peer lending: Evidence from China," Journal of Banking & Finance, Elsevier, vol. 112(C).
    16. Leonardo Gambacorta & Paolo Emilio Mistrulli, 2014. "Bank Heterogeneity and Interest Rate Setting: What Lessons Have We Learned since Lehman Brothers?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(4), pages 753-778, June.
    17. Qizhi Tao & Yizhe Dong & Ziming Lin, 2017. "Who can get money? Evidence from the Chinese peer-to-peer lending platform," Information Systems Frontiers, Springer, vol. 19(3), pages 425-441, June.
    18. Jianrong Yao & Jiarui Chen & June Wei & Yuangao Chen & Shuiqing Yang, 2019. "The relationship between soft information in loan titles and online peer-to-peer lending: evidence from RenRenDai platform," Electronic Commerce Research, Springer, vol. 19(1), pages 111-129, March.
    19. Bryan Bollinger & Song Yao, 2018. "Risk transfer versus cost reduction on two-sided microfinance platforms," Quantitative Marketing and Economics (QME), Springer, vol. 16(3), pages 251-287, September.
    20. Di Bu & Yin Liao, 2022. "Shaming Microloan Delinquents: Evidence from a Field Experiment in China," Management Science, INFORMS, vol. 68(5), pages 3768-3790, May.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:14:y:2022:i:21:p:14329-:d:961040. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.