The Failure of Chinese Peer-to-Peer Lending Platforms: Finance and Politics

54 Pages Posted: 22 Jan 2021

See all articles by Qing He

Qing He

Renmin University of China

Xiaoyang Li

The Chinese University of Hong Kong (CUHK)

Date Written: December 15, 2020

Abstract

We investigate the influence of financial and political factors on peer-to-peer (P2P) platform failures in China’s online lending market. Using a competing risk model for platform survival, we show that large platforms, platforms with listed firms as large shareholders, and platforms with better information disclosure were less likely to go bankrupt or run off (platform owners abscond with investor funds). More importantly, failing platforms were much less likely to run off in advance of major political events, but more likely to declare bankruptcy or run off after such events. These effects are more pronounced for politically connected platforms, platforms operating in provinces where local officials have close ties with central government, and in provinces with better local financial conditions. Our study highlights the role of political incentives on government regulatory intervention in platform failures.

JEL Classification: G33, G21, G23, P26

Suggested Citation

He, Qing and Li, Xiaoyang, The Failure of Chinese Peer-to-Peer Lending Platforms: Finance and Politics (December 15, 2020). BOFIT Discussion Paper No. 27/2020, Available at SSRN: https://ssrn.com/abstract=3764783

Qing He (Contact Author)

Renmin University of China ( email )

Room 705
Mingde main building
Beijing, Beijing 100872
China

Xiaoyang Li

The Chinese University of Hong Kong (CUHK) ( email )

Shatin, N.T.
Hong Kong
Hong Kong

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