Behaviors Of Borrowers And Investors In Online Lending Market

With the help of information technology,peer-to-peer online lending helps borrowers and investors to complete anonymous transactions based on trust.Borrowers and investors from all over the country can make a deal anytime and anywhere without the limitation of time and distance.Online lending with a lower threshold of bidding and borrowing requirements has attracted a large scale of borrowers and investors.The borrowers' and investors' behaviors play an important role in market operation and market efficiency.Due to insufficient risk control,deficient combined punishment measures after lending or regulatory policy shock,the borrower's default risk is much higher.The investors are mainly individual investors who are lacking professional knowledge and experience of investing.Therefore,they have some irrational behaviors.Furthermore,if the farmer,the poor and the small and micro enterprises can enjoy financial services at reasonable prices and equal opportunities in the online lending market,the online lending marketplace can help to achieve the serving goal of inclusive finance.With the intensive release of regulatory signals in recent years,the online lending market is at a critical moment of standardized development or transformation and upgrading.Studying the behaviors of borrowers and investors can provide reference and guidance for policymakers,platform operators and other participants.Based on credit rationing,discrimination theory,and affinity effects,this thesis builds analytical models of borrowers' financing cost,credit risk,investors' expected revenue,and decision making.Using the standardized transaction data,such as listings data and lending records,from one of the most famous peer-to-peer online lending platforms in China,this thesis investigates(1)the borrowers' credit risk and financing cost,(2)the investors' discrimination,(3)the inclusive effect of online lending and(4)the impact of investors' demographic characteristics and the homophily between borrower and investor on decision making.On the capital demand side,this thesis finds that the borrower's occupation,income level,debt level and being an entrepreneur can predict credit risk and influence the interest rate.Farmer's credit risk is much higher,indicating that the probability of default and default rate of farmer's funded loans are higher as well as the credit score is lower.Borrowers working in IT,finance or lawyering have a lower credit risk.Borrowers working in engineering,catering,hotel,education or retailing are high risk.To our surprise,high-income borrowers are at high risk.Borrowers who can borrow money from financial institutions are low risk in the online lending market.The probability of default and default rate of entrepreneurs'funded loans are lower,and their credit scores are higher.Furthermore,high-risk borrowers usually set a higher interest rate,and low-risk borrowers usually set a lower interest rate.But low-risk entrepreneurs may raise the interest rate for the urgent need for funding.However,investors could not fully identify the credit risk of borrower's demographics,resulting in some high-risk borrowers funding with low financing costs.On the capital supply side,this thesis finds that there exists vocational discrimination in the online lending market,investors dislike the poor and cherish the rich as well as they prefer to lend money to the entrepreneurs.The funded likelihood and average bidding amount of listings requested by borrowers working in IT are low,even though the default risk of borrowers working in IT is low.The investors prefer to lend money to the borrowers working in the energy industry,manufacturing industry or transportation industry,even though their default risk is high.Therefore,investors'behaviors show irrational vocational discrimination.The funded likelihood and average bidding amount of listings requested by high-income or high-debt borrowers are high,even though the high-income borrowers are high risk.Therefore,investors' behaviors show the irrational discrimination for income and rational discrimination for the debt.The funded likelihood and average bidding amount of listings requested by low-risk entrepreneurs are high.Therefore,investors' preference for entrepreneurs is rational.The inclusive effect of online lending is limited.The farmers,the poor and the entrepreneurs,also named vulnerable groups,are the key service groups of inclusive finance in China.Their dealing interest rate is high,indicating that the borrowers from vulnerable groups are faced with high financing costs in online lending.The funded likelihood and average bidding amount of listings requested by the farmers and the poor are low,and the funded likelihood and average bidding amount of listings requested by the entrepreneurs are high.Generally speaking,the goal of inclusive finance cannot be achieved by online lending.On the capital supply side,this thesis finds that investors' basic information,asset information,work information and lending information,as well as the homophily between borrower and investor,can significantly affect the bidding interest rate,bidding amount and return rate.One increase in the number of same demographics between borrower and investor is associated with bidding interest rate decreased 8.89 basis points,bidding amount increased 29.79 CNY and return rate increased 10.73 basis points.Furthermore,the homophily of age,education,marital status,province or being a house owner is associated with a lower bidding interest rate.The homophily of education,income,being house owner or car owner is associated with a higher bidding amount.The homophily of gender,marital status,debt or being a car owner is associated with a higher return rate.As a summary,this thesis systematically analyzes the borrowers'and investors'behaviors,extends the research scenario of credit rationing and discrimination theory to the online lending market which enriches the related theoretical research in this area.This paper expands the impact factors of default risk and financing cost which can help the platform operator to control risk and help the investors to make a rational decision.With more discrimination found in the online lending marketplace,it is helpful to improve the investors' investment efficiency and selection strategy.This thesis clarifies the role of online lending in realizing the goal of inclusive finance which can improve the understanding of online lending's inclusion among academia and regulators.It makes up the relative gap in the research on the impact of investors'characteristics and homophily between borrower and investor on the online lending decision making.Finally,the conclusions of this thesis have a lot of theoretical and empirical significance for the special rectification of online lending,for the transformation and upgrading of the platform as well as online lending participants.