Survival or die: a survival analysis on peer‐to‐peer lending platforms in China

Abstract

This study examines the probability of survival of online peer-to-peer (P2P) lending platforms in China. Our empirical findings show that shareholder's background, platforms' risk management and institutional environment are three major factors that influence the probability of survival of P2P platforms in China. In addition, the effects of risk control and institutional environment are less pronounced in state-owned P2P platforms. We also show that platforms that die from abscondence of owners tend to be more short-lived than others, while platforms that die from liquidity problems are usually due to lack of high-quality risk management techniques.

CEO influence on P2P platform survival: Education and experience do matter!

“…Experienced CEOs are more likely to have stronger ability to attract customers and new capital. Liu et al (2019) investigated institutional attributes' impact on P2P platform survival, including shareholder's background, risk control effects, and environment.…”

“…The equity inherent in being a state‐owned‐enterprise (SOE) can build investors' trust in the platform, attracting more investors and increasing revenue. The effect of ownership on platform default has also been discussed (Liu et al, 2019; Yoon et al, 2019), and it has been found that SOE‐backed platforms are more likely to survive, whereas platforms that lack proper management tools are more likely to fail. SOE platforms act more effectively and have a lower risk of default, which could be because of their higher level of management (Yoon et al, 2019; Song et al, 2018; Yan et al, 2018).…”

“…This information can be used to assess and predict the stability of the P2P platform, to determine whether the platform has capital operation risk and whether the platform is willing to ensure the safety of funds (Yan et al, 2018). The amount of registered capital is an important factor that is positively related to a P2P platform's success (Yoon et al, 2019; Liu et al, 2019; Song et al, 2019). A higher amount of registered capital is a strong signal of enhanced economic strength and helps the platform operate better.…”

“…These P2P firms serve many individuals or small firms. Meanwhile, running such platforms remains a challenge due to the existence of inherent risks such as the anonymity of the trading mode, uncertainty of the loan recovery, and potential opportunism (Lin, Prabhala, & Viswanathan, 2013; Liu, Zou, Yang, & Tang, 2019). P2P lending was introduced into China in 2007, but after several years of rapid development, platform operation problems began to emerge.…”

“…Previous studies have explored platform capital, location, interest rate, guarantee measure, and capital custody (Liu et al, 2019; Yan, Lv, & Hu, 2018; Yoon, Li, & Feng, 2019). It has been proved that platforms' economic status, risk management, and market competition significantly affect operating status (Yan et al, 2018; Yoon et al, 2019) and default risk (Liu et al, 2019). However, existing studies have overlooked the influence of CEOs, who play an important role in managing companies, especially start‐ups like P2P platforms.…”