The Predicting Power of Soft Information on Defaults in the Chinese P2P Lending Market

Yao Wang, Zdenek Drabek and Zhengwei Wang
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Yao Wang: Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic
Zhengwei Wang: Tsinghua University, PBC School of Finance

No 2018/20, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: Online peer to peer lending (P2P)– allows people who want to borrow money to submit their applications on the platform and individual investors can make bids on the loan listings. The quality of information in credit appraisal becomes paramount in this market. The existing research to assess the role of what is known as soft information in P2P markets has so far been very limited and, inconclusive due to differences in approaches and methodological limitations. The aim of the paper is to discuss the role of soft information channels in predicting defaults in the P2P lending market and to assess the importance of soft information in the Fintech companies’ credit analysis. Using a unique data of the Chinese P2P lending platform RRDai.com and new approach based on sets of hard and soft information, we compare the predicting performance of soft information, hard information and the combined role of both hard and soft information. We show that soft information can provide a valuable input in credit appraisal. The predicting power of soft information in our test was high, and together with hard information it can even help improve the loan performance. In exceptional situations characterized by the absence of hard financial data, soft information could be used, with caution, as an alternative.

Keywords: Soft Information; P2P Lending; Fintech; Microfinance; Credit Analysis; Empirical Study (search for similar items in EconPapers)
JEL-codes: D82 E51 G02 G14 G21 G23 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2018-01, Revised 2018-01
New Economics Papers: this item is included in nep-pay and nep-tra
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