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What does not kill us makes us stronger: the story of repetitive loan rejections

Author

Listed:
  • Mustafa Caglayan

    (Heriot-Watt University)

  • Oleksandr Talavera

    () (University of Birmingham)

  • Lin Xiong

    (Robert Gordon University)

Abstract

We examine factors that affect borrowing and lending when borrowers have experienced one or more failed funding applications. Using a unique dataset of 1,2 million loan applications from a peer-to-peer (P2P) loan platform in China, we investigate whether decision to apply varies with respect to the number of previous consecutive failures. Our results suggest that borrowers with better education are not likely to apply after a failed attempt. Repeat applicants provide less information in their loan narratives and are likely to pay higher interest rates per loan. We also find that females are discouraged early on. In relation to lender behavior, similar preferences apply across those who had one or more previous rejections as they prefer applications with high credit ratings and high income. Finally, our results are generally similar for both consumer and business loans.

Suggested Citation

  • Mustafa Caglayan & Oleksandr Talavera & Lin Xiong, 2019. "What does not kill us makes us stronger: the story of repetitive loan rejections," Discussion Papers 19-01, Department of Economics, University of Birmingham.
  • Handle: RePEc:bir:birmec:19-01
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    References listed on IDEAS

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    More about this item

    Keywords

    Peer-to-peer (P2P) lending; Discouraged borrowers; Listing outcomes; Information problem; Fintech; China;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M10 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - General

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