Income Rounding and Loan Performance in the Peer-to-Peer Market

47 Pages Posted: 8 Oct 2016 Last revised: 3 Jan 2017

See all articles by Nourhan Eid

Nourhan Eid

University of Sheffield

Josephine Maltby

University of York - The York Management School

Oleksandr Talavera

University of Birmingham

Date Written: December 5, 2016

Abstract

This paper uses a unique dataset from Lending Club (LC), the largest online lender in the U.S, to analyze the impact of income rounding on loans performance. We find that rounding of income by a borrower may be associated with adverse loan outcome. Borrowers with a rounding tendency are more likely to default and less likely to prepay than borrowers with more accurate income reporting. Furthermore, investors are not compensated for the extra risk associated with rounding. Borrowers who misreport income by means of rounding obtain lower interest rates and larger loans with longer maturity than those who do not round.

Keywords: Peer-to-Peer (P2P) lending, Rounding, Misreporting, Performance

JEL Classification: D12, G02, G20

Suggested Citation

Eid, Nourhan and Maltby, Josephine and Talavera, Oleksandr, Income Rounding and Loan Performance in the Peer-to-Peer Market (December 5, 2016). Available at SSRN: https://ssrn.com/abstract=2848372 or http://dx.doi.org/10.2139/ssrn.2848372

Nourhan Eid (Contact Author)

University of Sheffield ( email )

Elmfield, Northumberland Road
Sheffield, S10 2TU
United Kingdom

Josephine Maltby

University of York - The York Management School ( email )

Sally Baldwin Buildings
Heslington
York, North Yorkshire YO10 5DD
United Kingdom

Oleksandr Talavera

University of Birmingham ( email )

Edgbaston, Birmingham B15 2TT
United Kingdom

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