Speaker: Dr. Yao Zeng, National University of Singapore
Marketplace Lending: A New Banking Paradigm?
Time & Date:
Room 502, Daoyuan Building, CUHK(SZ)
Dr. Yao Zeng, University of Washington
One prominent feature of the burgeoning marketplace lending (i.e., P2P lending) is that investors conducting tasks traditionally performed by banks. Lending platforms pre-screen loan applications moderately, while investors, heterogeneous in their level of sophistication, further screen and decide on funding the loans. We theoretically argue that the participation of informationally sophisticated investors improves lending and loan pricing efficiency but creates an endogenous adverse selection problem. In maximizing loan volume, the platform trade-off between these two forces. Thus, intermediate levels of platform pre-screening intensity and information provision to investors are optimal. Using novel investor-level data, we empirically show that despite facing the same information set, more sophisticated investors screen loans differently from less sophisticated ones and significantly outperform. However, the outperformance shrinks when the platforms reduce the information set available to investors. These empirical facts are consistent with platforms dynamically managing adverse
selection through platform design and screening intensity.