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The Bilateral Effects of Platform-Sponsored Collateral in Peer-To-Peer (P2P) Lending: Evidence from China

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  • Xiaojun Shi
  • Qi Jin
  • Lin He

Abstract

Using a unique large dataset collected from one of the oldest and largest P2P lending platforms in China, namely PPDAI, this article tests the bilateral effects of a special type of platform-sponsored collateral on lenders and borrowers. Both theoretically and empirically, we find that smart lenders disaggregate the surety and riskiness-signaling effects of such collateral. Our evidence indicates that lenders in China’s P2P market are smart: they anticipate that platform-collateralized loans are riskier than the non-collateralized ones in the second or higher rounds of fundraising. For the borrowers, platform-sponsored collateral increases the overall borrowing capacity owing to its surety effect. Therefore, combining the two aspects, platform-sponsored collateral increases the overall efficiency of the P2P lending market given the safety of the platform per se.

Suggested Citation

  • Xiaojun Shi & Qi Jin & Lin He, 2020. "The Bilateral Effects of Platform-Sponsored Collateral in Peer-To-Peer (P2P) Lending: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(4), pages 771-795, March.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:4:p:771-795
    DOI: 10.1080/1540496X.2018.1530982
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    Cited by:

    1. Dongwoo Kim, 2023. "Can investors’ collective decision-making evolve? Evidence from peer-to-peer lending markets," Electronic Commerce Research, Springer, vol. 23(2), pages 1323-1358, June.

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