Evaluating performance of peer-to-peer lending platforms: a cross-country empirical study of panel data

Evaluating performance of peer-to-peer lending platforms: a cross-country empirical study of panel data

It has been a decade since crowdfunding and peer-to-peer (P2P) lending opportunities were first created. Today, an overwhelming number of P2P lending platforms can be found in both developed and emerging economies. A better understanding is needed not only of the dynamics of successful P2P lending, but also of the use and distribution of P2P lending mechanisms. This PhD study empirically investigates the main macroeconomic, country-related and borrower-specific factors influencing the credit risk in the P2P lending market via the utilisation of panel data regression analysis. The study investigates the impact of the interest rate and inflation on borrower-level loan delinquencies. By aggregating regional- and country-level data from the loan books of multiple platforms, this study examines the factors related to the default risks of loans issued by P2P lending platforms. The results indicate that a higher interest rate and inflation increase the probability of default in the P2P lending market. The positive association between inflation and interest rate on the probability of default is more pronounced when regional- and country-level religiosity and borrower ratings are lower. The results are robust to endogeneity correction and several additional analyses. This study also provides early evidence of the COVID-19 pandemic-induced exposure to liquidity risk in the P2P lending market. This study examines the listings in Bondora’s Secondary Market (Estonia), indicating that, despite increased volatility, the probability of success increased during the period of the pandemic. The outcomes of this study are applicable in regional and cross-country diversification of P2P lending, as is the case in traditional finance, paving the way for the market’s future best practices.