Financial Contagion in Internet Lending Platforms: Who Pays the Price?

31 Pages Posted: 1 Jul 2020 Last revised: 29 Oct 2020

See all articles by We Geng Cheng

We Geng Cheng

affiliation not provided to SSRN

Rodrigo Leite

COPPEAD Graduate School of Business

Fabio Caldieraro

affiliation not provided to SSRN

Date Written: May 25, 2020

Abstract

In contrast to traditional investment markets, in P2P lending platforms it is more difficult for individuals to assess the risk of the available investment opportunities. Because of this difference, it is unknown in the literature how the news of fraud on a platform affects other legitimate platforms. By using data from a natural experiment, the 2015 Ezubao scandal in China, we show that as a consequence of negative news about a platform, all players operating in a different platform (borrowers, lenders, and the platform itself) are worse-off due to the contagion. Moreover, we present evidence that high-income individuals and those that contracted loans with investment purposes are disproportionally affected by contagion from negative news.

Keywords: P2P lending, information contagion, systemic risk

JEL Classification: G23, G11

Suggested Citation

Geng Cheng, We and Leite, Rodrigo and Caldeiraro, Fabio, Financial Contagion in Internet Lending Platforms: Who Pays the Price? (May 25, 2020). Available at SSRN: https://ssrn.com/abstract=3621564 or http://dx.doi.org/10.2139/ssrn.3621564

We Geng Cheng

affiliation not provided to SSRN

Rodrigo Leite (Contact Author)

COPPEAD Graduate School of Business ( email )

Rua Pascoal Lemme
355 - Cidade Universitária
Rio de Janeiro, Rio de Janeiro 21941-918
Brazil

Fabio Caldeiraro

affiliation not provided to SSRN

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