Credit Risk Premium Dynamics of P2P Lending: Do Small Business Owners Pay More?
Wei He & Qian Wang
What the paper says
We attempt to assess and explain the credit risk premium of peer-to-peer (P2P) loans for small business purposes. Our evidence shows that P2P borrowers pay significantly higher interest rates for small business financing purposes than for other purposes, controlling for loan amount and borrowers’ characteristics. The higher interest rates can be justified by the higher default risks carried by small business borrowers. The robustness check further supports that the credit risk premium, as well as the default risk, are sensitive to macroeconomic shocks. The loans with higher interest rates and poor credit records are more likely to default across all economic states, especially during economic recessions. The observation is more evident in the loans for small business purposes. Small business borrowers do pay more and are more likely to default during economic downturns. The finding is consistent with our expectation that economic conditions have greater impacts on small business growth during economic downturns than during economic booms due to declining market demand and profitability.
Evidence weight
Balanced mode · F 0.40 / M 0.15 / V 0.05 / R 0.40
| F · citation impact | 0.50 × 0.4 = 0.20 |
| M · momentum | 0.50 × 0.15 = 0.07 |
| V · venue signal | 0.50 × 0.05 = 0.03 |
| R · text relevance † | 0.50 × 0.4 = 0.20 |
† Text relevance is estimated at 0.50 on the detail page — for your query’s actual relevance score, open this paper from a search result.