Xiaoyang Li (Chinese University of Hong Kong) - The Failures of Peer-to-Peer Lending Platform: Finance and Politics
Co-author: Qing He (Renmin University of China)
Abstract
We investigate the influence of financial and political factors on Peer-to-Peer (P2P) platform failures in the online lending market in China. Using a competing risk model for platform survival, we show that large, listed platforms and platforms with better information disclosure are less likely to go bankrupt or run off with investors’ money. More importantly, falling platforms are much less likely to go bankrupt or run off in advance of important political events, but more likely to go bankrupt after these events. These effects are more pronounced, among platforms that are more politically connected, and platforms operating in provinces where local officials have a close central-local political ties, and when there is a better local financial condition. Our study highlights the role of political incentives on government regulatory intervention of platform failures.
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