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Role of Verification in Peer-to-Peer Lending

Oleksandr Talavera and Haofeng Xu

No 2018-25, Working Papers from Swansea University, School of Management

Abstract: Using data from a leading Chinese Peer-to-Peer (P2P) lending platform from 2012 to 2015, we investigate the role of verification in the P2P lending market. We find that borrowers with thorough and complete verification are more likely to obtain funding and also less likely to default on loans. We also find that borrowers that have incomplete verification are more likely to upwardly misrepresent their income. This leads to higher default rates for this group when compared to the default rates of more thoroughly verified borrowers. The further analysis documents that returning borrowers are more likely to maintain a good credit record. We discuss the implications of our findings for the role of verification in the growing P2P lending sector and the design of a stable financial system.

Keywords: Information asymmetry; verification; P2P; income exaggeration (search for similar items in EconPapers)
JEL-codes: G21 G23 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-pay
Date: 2018-03-02
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https://rahwebdav.swan.ac.uk/repec/pdf/WP2018-25.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:swn:wpaper:2018-25

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