Small Business Borrowing and Peer‐to‐peer Lending: Evidence From Lending Club

Nowak, Adam; Ross, Amanda; Yencha, Christopher

doi:10.1111/coep.12252

Cited by 36 publications

(24 citation statements)

References 68 publications

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“…A vast amount of literature has documented that the lack of ability to access necessary external finance is one of the crucial unfavorable factors that negatively affect innovation and sustainable growth of small businesses [17,38,46,47]. For instance, Nowak et al [17] found that, to mitigate financing difficulty, small business loan descriptions can be used as a tool to signal borrowers' worthiness, which can predict the likelihood that the loan will be funded, and investors can make investment decisions based on proper and relevant signals given by the small business borrowers through the loan description. Cosh et al [47] considered what affects rejection rates for financing from different types of investors, including private individuals.…”

Section: Related Literaturementioning

confidence: 99%

“…Our paper, therefore, contributes to the growing literature on Internet finance as well as the broader literature on crowdfunding. Recent investigations include [10][11][12]14,15,[17][18][19][20][21][22][23][24][25][26][27]. Given that the explosive penetration of the Internet and Mobile Internet that has laid a sound foundation in China, which has been rapidly skyrocketing (China has greater Internet and mobile Internet development among emerging market economies with penetration ratios of 45% and 37.1%, respectively, in 2013, reported by Lei [19]), our study has important and timely implications not only for academics and practitioners, but for policy makers as well.…”

Section: Introductionmentioning

confidence: 99%

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Access to the Internet and Access to Finance: Theory and Evidence

Chen

Gong²,

Chu

et al. 2018

Sustainability

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This paper aims at investigating the relationship between the use of the Internet and access to external finance of small and micro businesses, both theoretically and empirically. We first develop a theoretical model to explore how access to the Internet affects the credit availability of firms. The model suggests that access to the Internet can effectively mitigate financing difficulty of firms by alleviating information asymmetry and reducing agency cost, and thus can promote the sustainable development of those firms. The model also shows that access to the Internet can improve social welfare based on aforementioned mechanism. Using China household finance data from China Household Finance Survey, we tested the impact of access to the Internet on access to finance of small and micro businesses. Our empirical results confirm the positive role played by access to the Internet in alleviating financing difficulty of those firms. Moreover, we also found evidence that access to the Internet can reduce borrowers' dependence on physical branches of banks when making bank choice decision for loan applications. Our evidence also implies that access to the Internet is conducive to the sustainable development of small and micro businesses via mitigating their financing difficulty.Keywords: access to the Internet; access to finance; sustainable development of small and micro businesses JEL Classification: G21; O16

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Section: Related Literaturementioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Access to the Internet and Access to Finance: Theory and Evidence

Chen

Gong²,

Chu

et al. 2018

Sustainability

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“…Asset information includes real estate, car property, and monthly wage income of borrowers, whereas personal physical signs include age, credit rating, educational background, and marital status of borrowers. As for soft information, the focus is on loan description, appearance, and social relations of borrowers, wherein loan description refers to loan information voluntarily written by borrowers, on the basis of which investors can make investment decisions (Nowak, Ross & Yencha, 2018). Many scholars discussed the content level of loan description, for example, vocabulary type used in loan description, which is manifested by character figures (Herzenstein, Sonenshei & Dholakia, 2011;Wang & He, 2015).…”

Section: Introductionmentioning

confidence: 99%

Can Readability of Loan Description Affect Loan Success Rate and Loan Cost?: A Textual Analysis of P2P Loan Description

Jiang

Fang

et al. 2020

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Text is an important form of information transfer. In a P2P (Peer-to-Peer) loan market with severe information asymmetry, loan descriptive information voluntarily written by a borrower may generate significant influence on investors’ decision-making. As an important language feature, readability determines whether the audience can accurately identify textual contents. To discuss the influence of readability of loan description on borrowing behaviors, the data of a Chinese P2P lending platform Renrendai during 2013–2017 were used in this study. Readability index of loan description was constructed through the textual analysis method, followed by an empirical verification of the influences of readability of loan description on loan success rate and loan cost. Results indicate that the readability of loan description in China’s P2P loan market can generate incremental information, and the readability of loan description has evident nonlinear relations with loan success rate and loan interest rate. Moreover, the readability of loan description presents a “reverse U-shaped” relation with loan success rate and a “U-shaped” relation with loan interest rate. Demographic information (gender and educational background) of borrowers will not influence investors’ feedback behaviors toward the readability of loan description. Conclusions provide empirical evidence for standardizing loan descriptive information on P2P lending platforms.

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“…The variables used in this study were loan amount, loan period, interest rate, installment, income, debt-to-income ratio, and FICO score. The analytical method used was Tobit regression, and results indicated that loans with low FICO scores can still influence lender investment decisions through descriptions made in the marketplace (Nowak et al, 2018).…”

Section: Literature Reviewmentioning

confidence: 99%

“…Zhang et al (2017) and Nowak et al (2018) show that the higher the interest rates offered, the higher the likelihood that a loan will be granted. The hypothesis built on this variable is as follows:…”

Section: Interest Ratementioning

confidence: 99%

The effect of loan granted factor on peer-to-peer lending (funded loan) in Indonesia

Kurniawan

Wijaya

2020

Investment Management and Financial Innovations

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This study aims to determine whether the loan granted factor can affect peer-to-peer lending in Indonesia. The factors investigated in this research are the loan amount, loan period, interest rate, gender, and loan history using the data from registered and licensed peer-to-peer lending by the Financial Services Authority or Otoritas Jasa Keuangan (OJK) on November 2019. By examining 1,006 loans, the analytical method used is binary logistic regression with a significance level of alpha 0.05. The results of this research are loan amount, loan period, and loan history have the strongest impact on borrowers’ loan funding decision, suggesting that these loan characteristics can signal information that standard measures are used for loan funding. However, interest rate and gender have no significant effect on loan granted. Overall, loan funding decisions are based on proper and relevant signals given by loan characteristics.

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Small Business Borrowing and Peer‐to‐peer Lending: Evidence From Lending Club

Cited by 36 publications

References 68 publications

Access to the Internet and Access to Finance: Theory and Evidence

Access to the Internet and Access to Finance: Theory and Evidence

Can Readability of Loan Description Affect Loan Success Rate and Loan Cost?: A Textual Analysis of P2P Loan Description

The effect of loan granted factor on peer-to-peer lending (funded loan) in Indonesia

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