The failure of Chinese peer-to-peer lending platforms : Finance and politics

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Title: The failure of Chinese peer-to-peer lending platforms : Finance and politics
ISBN: 978-952-323-357-7
Author: He, Qing ; Li, Xiaoyang
Organization: Bank of Finland
Department / Unit: Institute for Economies in Transition (BOFIT)
Series: BOFIT Discussion Papers
ISSN: 1456-5889
Series year: 2020
Series number: 27/2020
Year of publication: 2020
Publication date: 15.12.2020
Pages: 54
Subject (yso): politiikka; kannustimet; Internet; alustat; luotonanto; luotot; rahoitus; sääntely; riskit; konkurssi
Keywords: Bofit-kokoelma; online; verkkoalustat; Kiina; P2P
JEL: G33; G21; G23; P26
Other keywords: P2P platform failure; political interference; political connection; financial performance
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.
Table of contents: Contents Abstract ...... 4 1 Introduction ..... 5 2 Institutional background and research hypothesis ...... 10 2.1 Institutional settings ...... 10 2.2 Research hypothesis...... 12 2.2.1 Financial factors ...... 12 2.2.2 Political factors ...... 13 2.2.3 Other factors ...... 15 2.2.4 The decision to declare bankruptcy or run off ..... 15 3 Data, research design and summary statistics...... 17 3.1 Data ....... 17 3.2 Research design....... 20 3.2.1 Empirical methods ...... 20 3.2.2 Variables ...... 21 3.2.3 Summary statistics ..... 23 4 Empirical results........ 27 4.1 Main results....... 28 4.2 The influence of political connections ....... 32 4.3 The role of financial conditions........ 35 5 Robustness....... 37 5.1 Alternative measures...... 37 5.2 Alternative specifications..... 37 6 Discussion ....... 41 7 Conclusion........ 43 References ....... 45 Appendix A Variable definitions....... 49 Appendix B Correlation of variables........ 50 Internet appendix A Univariate tests (full) ...... 51 Internet appendix B P2P lending volume by type and region ...... 52
Rights: https://helda.helsinki.fi/bof/copyright


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