Peer Effect on Consumer Default Decision: Evidence From Online Lending Platform

30 Pages Posted: 27 Jun 2019

See all articles by Emma Li

Emma Li

Department of Finance

Li Liao

Tsinghua University - PBC School of Finance

Zhengwei Wang

Tsinghua University - PBC School of Finance

Xincheng Wang

Tsinghua University - PBC School of Finance

Date Written: June 11, 2019

Abstract

The existence of peer effect on financial decision is well documented in the literature. However, little is known about the peer effect on default choice of consumer credit. We fill this gap by using a novel data and research design constructed from a cash loan platform in China. We find the default decision of the peers who defaulted before the default of the borrower can predict the default choice of borrower. The likelihood of default of the borrower increases by approximately 16% as one more “Before” peers who has defaulted. However, the number of “After” peers is not significantly correlated with the default choice of borrower. The results provide evidence on the casual effect of peers default decision on borrower’s default decision and mitigate the effect from the similarity effect shared between borrowers and their peers.

Keywords: Peer effect, Default Decision, Cash loan, Fintech

JEL Classification: D14, G21, Z13

Suggested Citation

Li, Emma and Liao, Li and Wang, Zhengwei and Wang, Xincheng, Peer Effect on Consumer Default Decision: Evidence From Online Lending Platform (June 11, 2019). PBCSF-NIFR Research Paper, Available at SSRN: https://ssrn.com/abstract=3399515 or http://dx.doi.org/10.2139/ssrn.3399515

Emma Li

Department of Finance ( email )

221 Burwood Highway
Burwood, Victoria 3125
Australia

Li Liao

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

Zhengwei Wang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China

Xincheng Wang (Contact Author)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengdu Road
Haidian District
Beijing 100083
China

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