Asymmetric information in peer-to-peer lending: empirical evidence from China

Jin Wang and Rui Li

Finance Research Letters, 2023, vol. 51, issue C

Abstract: This paper examines how asymmetric information affects peer-to-peer lending in China. We find that default rates rise significantly with interest rates. Specifically, borrowers who select interest rates above the legal maximum private lending rate of 15.4% are more likely to default. A lack of interest rate caps to prevent adverse selection is responsible for the market failure of Chinese peer-to-peer lending. However, there is no strong evidence of the moral hazard effect in relation to interest rate and loan size. In addition, the credit scoring based on applicant characteristics can mitigate the asymmetric information problem, but not eradicate it completely.

Keywords: Asymmetric information; Peer-to-peer lending; Adverse selection; Moral hazard; China (search for similar items in EconPapers)
JEL-codes: D82 G14 G23 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:51:y:2023:i:c:s1544612322006298

DOI: 10.1016/j.frl.2022.103452

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