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

Xin Li () and Xiujuan Tian
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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

Sustainability, 2022, vol. 14, issue 21, 1-17

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.

Keywords: reputation mechanism; number of investors; SMEs; default risk (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
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