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Macroeconomic determinants of loan defaults: Evidence from the U.S. peer-to-peer lending market

Author

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  • Nigmonov, Asror
  • Shams, Syed
  • Alam, Khorshed

Abstract

The study documented in this paper utilises a probit regression analysis to empirically investigate the key macroeconomic factors that influence default risk in the peer-to-peer (P2P) lending market. By aggregating the United States (U.S.) state-level data with LendingClub's loan book covering the period from 2008 to 2019, this study examines multiple factors related to default risks of loans issued by P2P lending platforms. Our results show that a higher interest rate and inflation increase the probability of default in the P2P lending market. We also find that the impact of interest rate on the probability of default is significantly higher for loans with lower ratings. By paving the way to future market best practices, the study's outcomes apply to P2P lending platforms and investors in their default estimation of loans.

Suggested Citation

  • Nigmonov, Asror & Shams, Syed & Alam, Khorshed, 2022. "Macroeconomic determinants of loan defaults: Evidence from the U.S. peer-to-peer lending market," Research in International Business and Finance, Elsevier, vol. 59(C).
    • Handle: RePEc:eee:riibaf:v:59:y:2022:i:c:s0275531921001379
    DOI: 10.1016/j.ribaf.2021.101516
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    Cited by:

    1. Hyunwoo Woo & So Young Sohn, 2022. "A credit scoring model based on the Myers–Briggs type indicator in online peer-to-peer lending," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-19, December.
    2. Nigmonov, Asror & Shams, Syed & Alam, Khorshed, 2024. "Liquidity risk in FinTech lending: Early impact of the COVID-19 pandemic on the P2P lending market," Emerging Markets Review, Elsevier, vol. 58(C).

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    More about this item

    Keywords

    Crowdfunding; Default; Marketplace lending; Peer-to-peer lending; United States;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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