Missing repayments on haze days: Evidence from China

Jianwen Li, Keyang Li and Yuan Ren

Journal of Development Economics, 2025, vol. 175, issue C

Abstract: This study examines the impact of air pollution on a universal financial decision that is cognitively less demanding. Based on 281,314 repayment records from a leading P2P lending platform in China, we find that borrowers are more likely to miss their repayments when the scheduled repayment days witness heavier air pollution. A deterioration of air quality from “excellent” to “severely polluted” is associated with an instantaneous and transitory increase in delinquency rate by 143.3 basis points (11.3%). Instrumental variable estimates based on pollution transport via wind or thermal inversion show similar results. Our findings are consistent with air pollution prompting borrowers to forget their repayment obligations, which do not indicate financial distress. However, pollution-induced delinquencies reduce borrowers’ credit ratings and success rates of future loan applications, with the effect being as large as that due to delinquencies unlikely to be driven by pollution, implying a misallocation of credit.

Keywords: Air pollution; Household finance; Financial mistake; China (search for similar items in EconPapers)
JEL-codes: D14 G23 G40 G51 Q51 Q53 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:175:y:2025:i:c:s0304387825000422

DOI: 10.1016/j.jdeveco.2025.103491

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