Defaulting Factor Analysis On China' Online Peer-to-Peer(P2P) Platform

Paipai Loan,the first Chinese formal Peer-to-Peer(P2P)online platform,was established on June 2007,which has been more than nine years till now.The platform has completed 230 thousand transactions and reached 13 billion effective investments accumulatively.Nevertheless,the whole P2 P industry has not been so smooth as to Paipai Loan.According to the third party's data,more than 6000 P2 P platforms that have emerged during the last decade,while 60% of them are problematic.The reasons for faulty platforms lie in ineffective management,capital chain breakdown,hostile competition,and malicious falsehood.The scandal of E-rent Bao has warned the public on these sorts of issue.Moreover,in 2006,the Debit-Credit Bao,a suspected “naked loan” platform using personal private photos or videos as collaterals,caught our attention on the gray chain of many P2 P platforms' unrevealed illegal activities.Undoubtedly,all these have triggered authorities' actions to supervise and punish the problematic platforms seriously.It is Administrative Interim Measures for Business Activities of Online Lending Information Intermediate Institutions with the other nine relevant document issued by General Office of the State Council of the People's Republic of China(PRC),Ministry of Industry and Information Technology,State Administration for Industry & Commerce of the PRC,Ministry of Education of the PRC,China Banking Regulatory Commission,The Ministry of Public Security of the PRC in 2016 that strengthens the supervision on online finance industry.During the second half of year 2016,governmental authorities have carried out scheduled inspection and rectification to address the problem.Even though good-exit platform proportion has increased,default issues still occurred occasionally without a thorough industry reform.Thus,it is significantly important for investors to consider how to select reliable investment platforms.The main purpose of this paper is to give a contribution to identify default factors of P2 P platforms based on the data gathered from the third party platform,Linked In,and National Enterprise Credit Information Publicity System.33,165 effective data were gathered through these 3,015 resource channels.The methodologies include variable identification through qualitative analysis and Logit model on multiple variable regression.It is concluded that default platforms are diagnosed with incomplete information disclosure system and higher average expected returns than existing ones.On the contrary,it is less likely to fail when a platform supports credit transfer,provides trust fund service,exists over a long period,and obtains high benchmark actual registered capital.Furthermore,it is indicated that an entrepreneur who has good finance knowledge and relevant experience can make better choices on stable platform operations and healthy developments,so as to fight against default risks.The analysis is conducted to shed light on guiding investors to select P2 P platforms,advising on supervision policies,and paving the way for further studies.