Small Business Borrowing and Peer-to-Peer Lending: Evidence from Lending Club

Adam Nowak, Amanda Ross () and Christopher Yencha
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Adam Nowak: West Virginia University, Department of Economics

No 15-28, Working Papers from Department of Economics, West Virginia University

Abstract: This study is interested in the ability of borrowers and lenders to signal to each other in the peer-to-peer lending market. We focus on small business loans and investigate the relationship between the loan description that a borrower provides and the impact of this description on the potential funding of the loan by investors. We find that the loan descriptions in the data can be used to predict the probability that the entire loan will be funded. In addition, we also find that an index created from a textual analysis of the loan description can be used to forecast the performance of the loan; a 1 standard deviation increase in the index will decrease the odds of default by 14%. Thus, it appears as if investors are not making investment decisions based on improper signals.

Keywords: small business borrowing; peer-to-peer lending (search for similar items in EconPapers)
JEL-codes: D47 D53 D82 D83 G14 G21 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2015-07
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: SMALL BUSINESS BORROWING AND PEER‐TO‐PEER LENDING: EVIDENCE FROM LENDING CLUB (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wvu:wpaper:15-28

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