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The crowding-out effect of formal finance on the P2P lending market: An explanation for the failure of China's P2P lending industry

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  • Deng, Jiapin

Abstract

Using the credit records of the borrowers from a peer-to-peer (P2P) lending platform in China, this paper finds that P2P borrowers from cities with broader coverage of formal finance are more likely to default. Moreover, as formal finance develops, high-quality borrowers become less likely to turn to P2P lending, which suggests that formal finance exerts a crowding-out effect on the P2P lending market. This paper provides an explanation for the failure of China's P2P lending industry, implying that Fintech intended to promote financial coverage, if not reducing information asymmetry, does not necessarily lead to desirable economic and social outcomes.

Suggested Citation

  • Deng, Jiapin, 2022. "The crowding-out effect of formal finance on the P2P lending market: An explanation for the failure of China's P2P lending industry," Finance Research Letters, Elsevier, vol. 45(C).
    • Handle: RePEc:eee:finlet:v:45:y:2022:i:c:s1544612321002439
    DOI: 10.1016/j.frl.2021.102167
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    References listed on IDEAS

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    Cited by:

    1. Chong, Zhaohui & Wei, Xiaolin, 2023. "Exploring the spatial linkage network of peer-to-peer lending in China," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 630(C).
    2. Ozili, Peterson K, 2023. "Correlated lending to government and the private sector: what do we learn from the Great Recession?," MPRA Paper 116407, University Library of Munich, Germany.
    3. Hodula, Martin, 2023. "Interest rates as a finance battleground? The rise of Fintech and big tech credit providers and bank interest margin," Finance Research Letters, Elsevier, vol. 53(C).
    4. Wang, Jin & Li, Rui, 2023. "Asymmetric information in peer-to-peer lending: empirical evidence from China," Finance Research Letters, Elsevier, vol. 51(C).
    5. Li, Jianwen, 2023. "MSMEs meet FinTech: Chance or challenge?," Finance Research Letters, Elsevier, vol. 57(C).
    6. Hodula, Martin, 2024. "Beyond innovation: Fintech credit and its ripple effects on traditional banking profitability," Finance Research Letters, Elsevier, vol. 63(C).

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    More about this item

    Keywords

    P2P lending; Formal finance; Crowding-out effect; Fintech; China;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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