Research On Governance Mechanism Of Investor's Adverse Selection For Platforms In Online Lending

The emergence of online lending has played an important role in easing credit constraints and developing inclusive finance in China.However,in recent years,the risk of online lending industry has been concentrated for many times,and the frequent occurrence of platform bankruptcy has not only harmed the interests of investors,but also brought a lot of adverse effects to China's financial market.Many scholars have studied the online lending risk from different perspectives,among which the most abundant researches are on borrowers' credit risk.Nevertheless,there are few researches on how to choose platforms correctly to reduce the adverse selection risk of investors.Therefore,this paper will discuss the adverse selection between online lending platforms and investors.Methods of information economics,principal-agent theory,game theory,artificial intelligence algorithm and new institutional economics are adopted to reveal the formation mechanism of the adverse selection.The information disclosure governance mechanism of online lending platforms is studied,and the positive selection mechanism of investors is designed.Finally,it proposes policy suggestions to reduce the risk of adverse selection between platforms and investors,to protect interests of investors and to promote the healthy development of online lending market in China.Main contents of this paper are as follows.First,the characteristics of investors,platforms operation mode and multiple principal-agent relationship of online lending transactions in China are analyzed.It's found that most of platforms in China are in a composite intermediary mode,with the following basic characteristics: complex risk transmission mechanism,uneven quality of information disclosure,weak internal management and serious moral hazard of some platforms,and active industrial innovation and insufficient external supervision.Therefore,China's online lending platforms are more likely to mislead investors by opportunism.Secondly,causes of adverse selection are discussed,including the information asymmetry between the investor and the platform,and the opportunistic behaviors of the platform.Among them,information asymmetry originated from three links: platform information disclosure,third-party organization evaluation,investors' decision-making.The tendency of platforms' opportunistic behaviors is driven by two factors: information intermediary profit dilemma,regulatory system defects and low violation cost.Thirdly,by constructing dynamic tripartite incomplete information game models,the formation mechanism of adverse selection caused by information asymmetry and opportunism is explained theoretically.Information asymmetry makes investors choose platforms only on the basis of the rate of return.Opportunism makes building a fund pool and profiting from interest margin to become the dominant strategy of platforms.Fourthly,this paper analyzes the impact of information disclosure on investors' choices of platforms,builds up the optimization path of platforms information disclosure mechanism,constructs the evolutionary game model of the platform and the governance party by using the replicator dynamic equation,and puts forward the governance strategy of the platform information disclosure behavior.Fifthly,the evaluation framework of online lending platforms is constructed by using the new institutional economics method based on the principle of utility maximization.The platform evaluation method based on mutative scale chaos and LSSVM method is proposed,and the scheme of online loan investor education mechanism is designed to help investors evaluate risk accurately and control irrational deviation.Main conclusions are as follows.First,multiple principal-agent relationship in the online lending transactions is likely to lead to the information asymmetry between investors and online lending platforms,which results in the risk of adverse selection.Second,investors only take the rate of return as the decision-making basis given asymmetric information.The high-quality platform with low return will gradually withdraw from the market due to the shrinking volume of transactions.Then the low-quality platform of composite intermediary mode will run away because of the large-scale default of high-risk borrowers,resulting in the adverse selection between investors and platforms.Third,the information disclosure of online lending platforms has value guiding effect,enhancing effect of investor confidence and investor rights protection effect.In order to improve the quality of information disclosure,responsibilities and obligations of internal information disclosure should be clearly divided,internal supervision and balance mechanism should be built,the materiality of information disclosure should be enhanced.and a flexible punishment mechanism for platform illegal disclosure is established.Fourthly,the establishment of the evaluation mechanism of online lending platforms and the evaluation model of platforms' operation level based on the mutative scale chaos method and LSSVM algorithm are helpful to alleviate the asymmetry of information receiving.Fifthly,we should establish an investor education system with the third-party organization as the main body,distinguishing ordinary investors and professional investors,and giving full play to the role of internet technology.Sixthly,we should strengthen the construction of investors' supporting conditions for the adverse selection governance,including basic laws and regulations,online loan platform evaluation system,third-party intermediary service system and collaborative governance mechanism.