Does local legal environment matter in the online credit market?

Bo Wang ()
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Bo Wang: School of Finance, Southwestern University of Finance and Economics, 555 Liutai Avenue, Chengdu, Sichuan Province 611130, P. R. China

International Journal of Financial Engineering (IJFE), 2021, vol. 08, issue 03, 1-17

Abstract: The physical distance and fragile relationship between online debtors and online creditors make legal enforcement less intimidating; therefore, the role of the legal environment in the online credit market is a topic worth investigating. This paper employs an online lending platform and uses loan-level data to investigate the local legal environment’s effect in the online credit market. We find that a favorable legal environment can motivate online debtors’ integrity, improve online debtors’ credit availability and reduce online debtors’ loan costs, implying the positive externalities of the legal environment’s progress. Finally, we confirm that online debtors with lower income and large loan amounts benefit more from the legal environment’s progress. Our finding indicates that even though fintech has profoundly changed the organizational form and transaction mode of financial institutions, the legal environment still plays an essential role in promoting inclusive finance.

Keywords: Legal environment; online lending; fintech (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1142/S2424786321420081

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